Consumer borrowing up sharply in August

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WASHINGTON: Consumers have boosted their borrowing at the fastest pace in three months, turning increasingly to their credit cards to replace home equity loans as a source of ready cash.
The Federal Reserve reported that consumer credit rose at an annual rate of 5.9 per cent in August, the biggest increase since a 7.9 per cent jump in May.
The increase was led by an 8.1 per cent leap in revolving credit, the category that includes credit card loans. Consumers have been using their credit cards more to finance purchases now that home equity lines of credit are becoming harder to obtain.
Non-revolving credit, which includes auto loans, also rose at a faster pace in August, increasing at an annual rate of 4.7 per cent, compared with gains of 3.1 per cent in July and 4 per cent in June.
In total, consumer credit rose by $12.2 billion to a record $2.469 trillion. The increase was bigger than the $9.5 billion gain analysts had been expecting.
Ryan Sweet, an economist at Moody's Economy.com, said that the healthy increase provided "further evidence that consumers did not pack it in" after the financial market turbulence hit in August.
During the housing boom, when home sales were hitting records for five consecutive years and prices were soaring, many homeowners tapped the rising value of their homes to finance increased spending by taking out home equity lines of credit.
However, now that home sales are plunging and double-digit increases in housing costs are a thing of the past, home equity lines of credit have become less available. That has pushed consumers back to credit cards to finance their spending. — Internet