Low rates appear to give consumer spending a boost

Recent economic reports suggest that consumer credit in the United States is likely to continue growing as households rely on borrowing to buy large-ticket items like cars and to maintain their spending, which accounts for about 70 percent of the economy.

"People are taking advantage of cheap borrowing costs," Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia, said before the report.

As a result, consumer credit in the U.S. rose in April for the eighth consecutive month, boosted by financing for education and automobiles. The $6.51 billion increase followed a $12.4 billion gain in the previous month, the Federal Reserve said last week. Non-revolving credit, which includes student loans and automobile lending, climbed by the most in three months.

"It shows some confidence in the economy, but more than that, it's just about higher demand," LeBas said.

Meanwhile, revolving debt, which includes credit cards, dropped by $3.44 billion. The report doesn't track debt secured by real estate, such as home equity lines of credit and home mortgages.

Overall, credit is improving, and the economy maintained a moderate pace of growth from early April to late May, the Fed said. "Overall economic activity expanded at a moderate pace" the central bank said in its Beige Book earlier this month. Consumer spending, in turn, climbed 0.3 percent in April as incomes rose 0.2 percent, according to Commerce Department data.

"We still see a consumer out there who is making some tough choices," said Timothy A. Johnson, an executive at Ohio-based retailer Big Lots Inc. "He is concerned about where the economy currently sits."

While auto sales eased in May to a 13.7 million annual rate from April's 14.4 million pace, they were still up 17 percent from a year earlier, according to Ward's Automotive Group.