Consumers Step Up Their Borrowing

As consumers geared up for the holidays, they borrowed more money. That's the bottom line of a report from the Federal Reserve that shows consumer debt rose 9.9 percent on a seasonally adjusted basis in November.

The report is in marked contrast to consumer behavior over the last three years as consumers made a conscious efforts to avoid new debt and pay down existing obligations. In some cases consumers were no longer able to get credit as many credit lines were reduced and some accounts closed altogether by credit card lenders.

The Fed report measures borrowing on credit cards, car loans, school loans and other installment debt.

Economists generally welcome the news that consumers are borrowing more, pointing out that the economy will never really achieve robust growth until consumers start spending again. But consumer advocates worry that consumers could be falling back into the same old debt trap, and this time without the rising incomes to help them keep pace with payments.

Why the surge?

There's also the reason consumers are borrowing. Is it because they are feeling more confident? If so, that could indeed be a healthy sign, showing that consumers expect to be able to pay back the money they owe.

But if they are borrowing more because they are desperate, and have no other alternatives to meet rising expenses, that could be bad news. Economists said they need to see several more months of data to reach a conclusion.

The report comes amid other data suggesting the economy is improving. Unemployment fell in December as the economy added 200,000 new jobs. New and existing home sales were up in the last reporting period. Some private forecasters are predicting the U.S. economy grew at a rate of 3.25% to 3.5% in the fourth quarter of 2011.