Facebook Twitter



Consumer loans rocketed by $3.9 billion in May at an annual growth rate of 6.5 percent on a surprising surge in credit card use, the Federal Reserve Board reported this week.

Private analysts expected a much smaller increase."It's sort of a strange number," said Robert Dederick, chief economist at Northern Trust in Chicago. "We have this huge increase (but) there wasn't anything in retail sales that would suggest this."

Jean Sundrla, of the private forecasting firm Evans Economics in Washington, suggested revised retail sales data to be released Friday could show "credit cards haven't been put away."

A modest April increase in consumer credit was revised down to $390 million from $584 million, and followed a gain of nearly $2.6 billion in March, the Fed said in its monthly report.

"The increase in May was concentrated in revolving credit" as well as mobile home loans, the Fed said. "Auto credit was virtually unchanged from April."

May's annual growth rate follows a revised estimate of 0.6 percent in April and 4.3 percent in March, the Fed said.

Dismissing the report as a fluke, Dederick said, "The basic message is that consumer, despite this number, has been a cautious spender and a cautious borrower of late."

"There is no evidence of a fundamental change," Dederick said.

But Sundrla also suggested the huge May increase could be a result of April's quiet credit activity.

According to the Fed's estimates, the May increase in revolving credit totaled $3.1 billion, while the advance in mobile home loans totaled $325 million.

The category of "other" loans also increased in May, by $533 million, while the change in auto loan activity was pegged at a decrease of $87 million.

The increase in credit card use was across the board for revolving credit extended by commercial banks, retailers and at oil companies. The weak activity in car, van and truck loans was blamed mostly on a decline in activity at auto finance companies.

The Fed also said that during May commercial banks charged 11.82 percent interest on a 48-month new car loan, 15.41 percent on a 24-month personal loan, and 14.09 percent on a 120-month mobile home loan.

The interest rate of credit card loans at commercial banks stood at 18.14 percent for the month, the Fed said.

Auto finance companies, meanwhile, charged an interest rate of 12.23 in May on a new car loan and a rate of 16.03 percent on a loan for a used car.