Consumer credit: Surprise $1.8 billion jump

The Federal Reserve says borrowing by consumers increased in January but economists urge caution.

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By Catherine Clifford, CNNMoney.com

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NEW YORK (CNNMoney.com) -- Consumer borrowing showed a surprise rise in January, snapping a three-month decline and signaling that households may have started to loosen their purse strings.

However, one month of upbeat news does not make a trend, said Wachovia economist Adam York.

"The combination of consumers wanting to rein in their spending - especially for big ticket durables, things that get financed - coupled with banks looking to lower the risk of their balance sheets means that we will look for weak growth in consumer credit at best or potentially further declines," said York.

Credit card borrowing, or revolving debt, increased at an annual rate of 1.2% in January, following a revised 9.5% drop in the prior month, according to the Federal Reserve. Non-revolving credit, including student and auto loans, increased by an annual rate of 0.6%, versus a revised uptick of 0.1% in December.

Total consumer borrowing rose by $1.8 billion to $2.564 trillion in January, according to the Fed. That's an increase from a revised $2.563 trillion in December.

Economists were expecting consumer credit to fall by $5 billion in January, according to a consensus of economists polled by Briefing.com.

The annual rate of consumer borrowing rose by an annual rate of 0.75% in January, following a revised 3.5% drop in the prior month.

York said that he will be looking closely at next week's government report on monthly retail sales for a better read on consumer sentiment going forward, especially following the surprise 1% jump reported in December. Economists polled by Briefing.com anticipate sales will show a 0.4% slide for January.

Last August, consumer credit contracted for the first time since January 1998. After a rebound in September, credit started contracting and the amount of consumer debt fell for the remainder of 2008.

Consumers have been skittish to spend and lenders have been skittish to lend in an environment where the economy is shedding jobs by the droves and foreclosures keep rising.

Friday, the government reported that the unemployment rate surged to its highest level in 25 years. Employers slashed 651,000 jobs in February, down from a revised loss of 655,000 jobs in January, according to the report from the Labor Department. The unemployment rate rose to 8.1% from 7.6% in January. To top of page

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