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Oct 7, 3:31 PM EDT

Consumer borrowing up $13.5 billion in August

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WASHINGTON (AP) -- U.S. consumers increased their borrowing in August in the category that covers auto loans and student loans but cut back on their credit card borrowing.

Overall borrowing rose $13.5 billion in August following a revised $21.6 billion increase in July, the Federal Reserve reported Tuesday. The gains have pushed total consumer debt to a record level of $3.25 trillion.

The category that includes auto loans and student loans increased $13.7 billion in August while the category that covers credit card debt declined by $208 million, the first drop in this area in six months.

Rising levels of consumer borrowing coupled with strong employment growth are viewed as a good sign that consumers are more confident about taking on debt to finance purchases. Consumer spending accounts for 70 percent of economic activity.

Consumer spending rose a healthy 0.5 percent in August, adding to signs that the economy was sustaining strength in the July-September quarter. The gains are expected to continue in the final three months of the year. The government reported Friday that employers added a strong 248,000 jobs in September and the number of jobs created in July and August was revised up by 69,000. The gains helped push the unemployment rate down to a six-year low of 5.9 percent last month.

The August increase in total borrowing put it 6.8 percent above a year ago. Auto and student loans are up 8.2 percent from a year ago while credit card debt has risen a smaller 3.2 percent.

The large increase in student debt has raised concerns that young Americans are being saddled with student loans that will keep them from buying homes or spending as previous generations have after college.

Student loans have soared since the recession ended, topping $1.1 trillion in the second quarter of this year. That's up from $700 billion in 2009.

The New York Federal Reserve reported that demand for auto loans reached the highest level in eight years this spring with more people with checkered credit histories obtaining the loans. That has raised worries about the potential for defaults down the road.

The Federal Reserve's monthly credit report does not cover mortgages or any other loans that are backed by real estate.

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