Are Americans about to take on more personal debt?

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Politics,Finance and Banking,PennAve,Joseph Lawler,Economy,Federal Reserve,Credit Cards,Housing

It looks like 2014 could be the year that American households start taking on serious debt.

For five years after the financial crisis, consumers cut back on borrowing. When the housing bubble burst, leaving millions with mortgage debt they struggled to pay off, many Americans held off on the new car or dishwasher and instead shored up their personal balance sheets.

The glaring exception was student borrowing, which boomed as millions sought refuge from the jobs crisis in college.

But, it now seems clear, that long process of deleveraging finally came to an end in mid-2013. Americans finally began adding mortgage debt, and picked up the pace of their borrowing for other kinds of spending, as data from the Federal Reserve Bank of New York's credit survey shows.

It appears that 2014 could be the year that consumer borrowing, setting aside mortgages, takes off.

The Federal Reserve will report on consumer credit for June on Thursday, and if the past few releases are a guide, it will suggest that there's a mini-boom in non-mortgage borrowing.

Households added debt at a 6.6 percent annualized clip in the first quarter, according to the Fed. The leveraging only accelerated in April and May, at 10 percent and 7.4 percent respectively.

That growth reflects relatively heavy use of credit cards. But the strongest growth, at over 9 percent for each of the past three months, has been in student and car loans. The recent increase in car loans to subprime borrowers, in particular, has been notable.

The Obama administration would like to see that credit growth replicated in the housing sector as well. In May, Mel Watt, the new director of the agency that oversees housing finance, announced that he would redirect the agency's mission from decreasing the market footprint of Fannie Mae and Freddie Mac toward expanding lending. Banks have maintained high standards for creditworthiness in the wake of the housing collapse.

The Obama administration and officials at the Fed believe have said that greater mortgage lending would help the economic recovery accelerate. Sustainable growth in other forms of consumer lending could be the precursor to what they want to see.

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