Consumer borrowing rose in October by the largest amount in more than two years, a jump led by a recently enacted law that makes the government the primary lender to students, the Federal Reserve reported earlier this month.
Consumer credit rose at an annual rate of $3.4 billion in October, surpassing a flat reading that economists had predicted, and the largest increase since a $5.7 billion gain in July 2008. The gain translated into a 1.7% rise and followed a 0.6% increase in September. The two months mark the first consecutive monthly gains since mid-2008. Consumer credit had fallen for 19 straight months before September.
The Fed's measure of consumer credit covers such categories as credit card debt, student loans and auto loans. But it does not include mortgages or any other type of loan secured by real estate.
For October, the borrowing category that includes auto loans and student loans rose 6.8% following a strong 7.6% increase in September.
Much of that gain was powered by student loans from the federal government. Before the change in law, the federal government had been the guarantor of student loans that were being provided by private lenders.
But the gains were not strictly due to student loans. Auto sales also were stronger and a separate report Tuesday showed that consumers with less than stellar credit were starting to get auto loans again as lenders ease standards.
That report from Experian, a credit reporting agency, showed that loans going to subprime buyers rose 8% in the third quarter, compared to the third quarter of 2009. It was the first year-over-year increase since 2007.
The credit card lending category dropped 8.4% in October, a record 26th consecutive monthly decline, according to the Fed.
Households have been borrowing less and saving more, a major factor limiting overall economic growth because it has depressed consumer spending, which accounts for 70% of total economic activity.
The level for total credit in October stood at $2.4 trillion, down 3.1% from a year ago and 7.1% below the all-time high for consumer credit hit in July 2008.
