Ahead of the Bell: Consumer borrowing

WASHINGTON (AP) -- Consumers likely borrowed more in January, following two months in which they increased their borrowing by the most in a decade.

Economists believe consumers increased their borrowing by $10 billion in January, according to a survey by FactSet. The Federal Reserve is scheduled to release the report at 3 p.m. Eastern time on Wednesday.

In December, consumer borrowing rose by $19.3 billion after a $20.4 billion gain in November. The two increases were the biggest monthly gains in a decade.

The increases pushed borrowing up to a seasonally adjusted $2.5 trillion in December, nearly matching the pre-recession borrowing level. The gains left borrowing 4.4 percent above the post-recession low hit in September 2010.

Many economists believe the rise in borrowing is a sign that consumers are feeling more confident about the economy. But consumers are also borrowing more at a time when their wages have not kept pace with inflation.

The outlook for hiring has improved, which could help boost consumer spending in coming months if consumer confidence keeps rising.

In January, companies added 243,000 net jobs and the unemployment rate fell to 8.3 percent, the lowest in three years. The economy has added an average of 200,000 net jobs per month from November through January.

Economists are predicting another strong employment month in February, forecasting the addition of 210,000 net jobs. The government reports Friday on February job growth.

Ellen Zentner, an economist at Nomura Securities in New York, said there were encouraging signs that consumers are feeling better about their finances, because of the strong employment gains, and thus will be more willing to borrow to support spending in the future.

"We have begun to see in the past few months a sign of greater confidence with households more willing to take on debt," she said. "As long as we keep having job growth, I expect to see credit growth pick up."

The Conference Board reported last week that its confidence index rose in February to the highest level in a year. While rising gas prices could dent that optimism, Wall Street has seen a rally which pushed the Dow Jones industrial average to a close above 13,000 on Feb. 28, the first time that has happened since Oct. 9, 2007.

But even with the gains in employment, Americans are seeing little growth in after-tax incomes. After paying taxes and adjusting for inflation, incomes actually dipped in January, and after adjusting for inflation, consumer spending was flat for a third straight month.

Even though incomes were higher in the second half of the year than previously thought, they still showed a gain of just 1.3 percent for all of 2011. Except for the recession year of 2009, when incomes fell, that's the smallest annual growth in incomes since 1991.

The Federal Reserve's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.