Borrowing by U.S. Consumers Continues to Increase in May

U.S. consumer debt rose in May as households encouraged by the lowest interest rates in 45 years continued to support the economy by buying on credit, the Federal Reserve said Tuesday.

Consumers took on $7.34 billion more in debt such as auto loans and credit card balances in May, a 5% gain, after a revised increase of $7.83 billion in April, the Fed said. Household spending, which accounts for two-thirds of the economy, has continued to expand even as manufacturing and business investment have faltered.

At the same time, with the U.S. unemployment rate at a nine-year high of 6.4% in June and consumer spending rising at half the average rate of the 1992-2000 expansion, some economists question whether the rate of borrowing can be sustained.

The May increase in borrowing brought total consumer credit to $1.76 trillion. The Fed’s monthly report doesn’t track loans secured by real estate, such as mortgages and home equity loans. Such debt rose 2.8% to $6.219 trillion in the first quarter from the fourth, the Fed said last month in a quarterly report.

The Federal Reserve last month reduced its benchmark overnight bank lending rate by a quarter-point, to 1%, the lowest since 1958. In Tuesday’s report, the Fed said bank credit card rates were 12.9% in May, down from 13.2% in the first quarter.

Revolving loans, including credit cards, rose 5.3%, or $3.17 billion, to $725 billion in May. Nonrevolving loans for vehicles and mobile homes, which make up almost two-thirds of household nonmortgage debt, rose 4.9%, or $4.18 billion, to $1.04 trillion, the Fed said. Auto sales in May eased 2.4% from April to a 16.1-million-unit annual pace.