Economic Report: Consumer credit accelerated in October by largest amount in 11 months

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Senior economics reporter

Student loans weren’t the engine of growth in consumer credit.

The numbers: Consumer borrowing surged in October by the largest amount in 11 months, according to the Federal Reserve on Thursday. Total consumer credit increased $20.5 billion in October to a record seasonally adjusted $3.8 trillion, posting an annual growth rate of 6.5%. Economists had been expecting a $17 billion increase.

This is the second straight strong monthly gain in consumer borrowing. Credit rose a revised $19.2 billion in September, down only slightly from the prior estimate of a $20.8 billion.

What happened: Credit-card borrowing powered the increase. Revolving credit, which is mostly made up of credit-card loans, accelerated to an annual rate of 9.9% in October, faster than the 7.3% gain in September. Non-revolving credit, which covers loans for education and cars, rose at an annual rate of 5.3% in October, slightly slower than the 5.7% rate in September.

Also read: Household wealth climbs $1.7 trillion on stock market, house price advances

Big picture: The hefty above-trend gain in consumer credit in October was likely aided by the post-hurricane surge in auto sales. Trend growth of consumer spending has been nearer to $12 billion, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Revolving credit has been rising, which may boost holiday sales.

Non-revolving credit has been decelerating, in part because the low unemployment rate is attracting younger people into the labor market and reducing the demand for student loans, Shepherdson said. The data excludes loans secured by real estate, like home mortgages.

What are they saying?: “While some of the increase in credit-card debt could be related to spending following the hurricanes, the strength of consumer sentiment surveys suggests there could be a greater willingness on the part of the consumer to re-lever modestly,” said T.J. Connelly, head of research at Contingent Macro Advisors.

Market reaction: Investors don’t typically react to consumer credit data from two months ago. The Dow Jones Industrial Average DJIA, +0.29%   and the S&P 500 index SPX, +0.29%  both had small gains in Thursday trades.

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