Borrowing reaches eight-month high in July

WASHINGTON -- Americans, taking advantage of free-financing offers and other incentives, increased their borrowing in July by the largest percentage in eight months.

The Federal Reserve reported Monday that consumer credit rose by a seasonally adjusted $10.8 billion in July from the previous month, a 7.6 percent annual rate.

The increase, largely on target with the advance some analysts were forecasting, left consumer borrowing at $1.72 trillion.

Free-financing deals and low interest rates have motivated consumers to spend and help the economic recovery, economists said. Rising home values and extra cash from the refinancing boom also are supporting consumer spending, they said. Those positive forces are helping to offset some negative factors, including the turbulent stock market, a sluggish job market and eroding consumer confidence.

July's 7.6 percent growth rate marked the biggest advance in borrowing since November.

"As long as free-financing, discounting and other incentives continue, we can expect to see consumers ringing up those cash registers and borrowing briskly," said Richard Yamarone, economist with Argus Research Corp.

No cracks in pillar

Consumers play a key role in shaping the economy's recovery from last year's recession because their spending accounts for two-thirds of the nation's economic activity. "Apparently, the loan pillar of strength for the economy -- the consumer -- is not cracking," Yamarone said.

In July, demand for revolving credit, such as credit cards, rose by $6.5 billion, or at a brisk annual rate of 10.8 percent. That followed a smaller $3.5 billion increase and a growth rate of 6 percent in June.

For nonrevolving credit, which includes new cars and vacations, demand grew by $4.4 billion in July, or at an annual rate of 5.3 percent. That compared with a $5.3 billion increase, or a 6.4 percent growth rate, in June.

The Fed's report on consumers includes credit card debt and loans for autos, boats and mobile homes. It does not include loans backed by real estate, such as home mortgages or increasingly popular home equity loans.

In June, consumers increased their borrowing by $8.9 billion, a rate of 6.2 percent, according to revised figures. That was stronger than the Fed previously reported.

Hoping to spur the economic recovery, the Federal Reserve has helped to keep short-term interest rates at a four-decade low all year. Most analysts believe the Fed will leave rates unchanged when it meets next on Sept. 24.