The Federal Reserve announced Friday August consumer borrowing increased $18.1 billion over July, its highest amount in three months. The figure rebounded from July’s $2.5 billion borrowing drop—the first in almost a year.
Not only did borrowing gain in areas of auto loans, credit card debt and student loans, but another report indicated the U.S. unemployment rate dropped to just 7.8 percent in September. Both figures are considered positive signs of a recovering economy.
IHS Global Insight senior economist Gregory Daco told the Associated Press he expects the low interest rates driven by the Federal Reserve’s newest round of bond buying to continue propelling the economy.
“Some consumers with healthy finances are making more use of credit to buy autos and retail good,” Daco said.
August saw a $4.2 billion increase in credit card borrowing and a $13.9 billion increase in auto and student loans. Increased credit card usage and auto lending led to higher retail sales for the month, as well. By month’s end, total consumer debt equaled $2.73 trillion—a 5.5 percent-increase over the July 2008 peak before the recession.
“Vehicle sales are pretty strong, which is boosting non-revolving credit,” Ryan Sweet, senior economist at Moody’s Analytics Inc., told Bloomberg before the Fed’s report.
Because banks are charging consumers the lowest interest rates on new-car loans since the Fed began surveying them in 1971, demand for auto loans continues to strengthen the economy. In fact, auto purchases hit an annualized rate of 14.9 million in September, the strongest sales in the industry since March 2008, according to Ward’s Automotive Group.
After four years of decreased credit card usage, total credit card debt remains 17 percent less than the $1.03 trillion owed in 2008. However, higher oil prices are pushing up Americans credit card usage.
At the same time, student loan debt has continued to increase. The lending category that includes both student and auto loans is now 20 percent higher than it was in July 2008.
In fact, in the second quarter, student loans totaled $914 billion, according to the Federal Reserve Bank of New York, a 50-percent increase from the third quarter of 2008.
Analysts state the increase in student loans is the result of the high unemployment rate, as many Americans have chosen to return to college in efforts to be more competitive in the job market.
Other Fed reports further indicate American finances are on the upswing. Last month, the Fed reported an increase in the stock market and rising home prices are pushing Americans toward regaining wealth lost in the recession. It’s no wonder such a rebound has taken time. In the Great Recession from 2007 to 2009, the average American lost almost a quarter of his or her wealth. Pre-recession, American wealth sat at $67.4 trillion. By early 2009, it had dropped to just $51.2 trillion. As of this past June, however, household net worth—the difference between assets and liabilities—had rebounded to $62.7 trillion.
Payrolls continued to grow in September, as well. The Labor Department announced Friday 114,000 workers were added in September. Adding to the 142,000 jobs gained in August, the 7.8 percent unemployment rate is at its lowest point since January 2009.