US consumers go for more credit to buy cars and fund education

Consumers in the US have started to take on much more debt, much to the surprise of analysts.

The Federal Reserve said yesterday that consumer credit outstanding rose in December at a 9.3 per cent annual rate, thanks mostly to strong car sales and growing demand for student loans.

The seasonally adjusted dollar gain from November stood at $19.3 billion, almost three times what analysts had predicted, and December marked the second straight month of 9 per cent -plus growth.

The positive aspect is that the increase reflects the pickup in consumer confidence and spending, as the labour market has picked up since last summer. Banks, though rather cautious with credit, are seen to be more willing to lend to households.

However, the flip side of the development is that consumers also are having to finance more of their pent-up appetites for cars and other products due to their incomes failing to grow.

Though many consumers already have cut their savings they may not keep doing so in this still-shaky economy, and are forced to use the plastic more to support their increased spending.