Consumer Credit Surges 8.6%, Mostly on Student Debt

The American consumer is levering-up again, as consumers borrowed more for everything from student loans to cars.

Consumer credit jumped 8.6 percent, or $17.7 billion, in January to $2.54 trillion, the Federal Reserve reported. It was the fifth straight month that borrowing increased and the largest gain since 2004.

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The increase was much larger than the $10 billion analysts had expected, according to a Reuters poll.

The consumer credit gains were driven almost exclusively by student loans from the federal government,raising doubtsabout whether the report signals economic growth.

Revolving credit, which mostly measures credit-card debt, declined 4.4 percent. Nonrevolving credit, which includes big-ticket items like auto loans and student debt, rose 14.7 percent.

Significantly, banks and finance companies reduced the amount of lending extended to consumers.

Paul Kasriel, chief economist at Northern Trust, earlier said bank credit "historically has been the catalyst for strong economic growth."

Banks constitute the largest proportion of total consumer credit lending, to which various finance companies, credit unions, savings institutions, and the government also contribute.

It follows, Kasriel said, that bank lending is the most important factor for economic growth. "It's what has been lacking up until recently in this economy."

Yet relaxed credit conditions did not dominate the report.

"Government-subsidized student loans are a huge part of consumer credit. And since state budgets continue to be strained, that will continue," said Thomas Berner, an economist at UBS.

On this point, economists agree: Student loan debtinflates credit levels with little economic impact.

In total, the Federal Reserve'sborrowing report covers auto loans, student loans and credit cards, and excludes real estate loans, such as mortgages and home equity loans.

An earlier version of this report said consumer credit surged 8.6 percent to reach $17.7 billion. In fact, it rose 8.6 percent, or $17.7 billion, to $2.54 trillion.

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