Consumer debt jumps in May

Consumer borrowing posted a hefty increase in May, reflecting the biggest jump in credit card debt in six months.

The Federal Reserve reported Monday that consumer credit rose at an annual rate of 6.4% in May, far above the small 1.1% gain of April.

The increase was propelled by a surge in the category that includes credit cards, which rose at a rate of 9.8% in May after having a tiny increase of 0.2% in April.

The jump in credit card debt was the largest since November, when the rate of increase was 14.5%.

The category of consumer credit that includes auto loans was also up in May, rising at a 4.4% rate after a 1.7% gain in April.

The size of the increase was nearly double what economists had been forecasting, although they were looking for a rebound from the sluggish performance in May, when the 1.1% rise in overall credit was the smallest gain since a 0.1% rise in October.

David Wyss, chief economist at Standard & Poor’s, said some of the surge in credit card debt reflected the fact that it was getting more difficult to land home equity loans with banks tightening up on standards and home values not soaring as they did during the housing boom.

“We think that people who had been refinancing their credit card debt into home equity loans are finding that harder to do now,” Wyss said.

The overall economy, weighed down by a slump in housing, grew at a lackluster rate of 0.7% in the January-to-March quarter, the weakest showing in more than four years.

But economists believe strength in employment and consumer spending would help provide a stronger performance in the April-June quarter.