Consumer

The American consumer appears to be levering-up again. But ahead of Wednesday's consumer credit report, the big debate among economists is whether borrowing signals economic growth or economic strain.

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According to the Federal Reserve's lastest report, total consumer borrowing reached $2.5 trillion in December of last year, nearly matching the pre-recession [cnbc explains] level.

January's report, which will be released later Wednesday, is forecast to add an additional $10.45 billion.

"For the first time since the recession, we're starting to see bank credit increase. That historically has been the catalyst for strong economic growth," said Paul Kasriel, chief economist at Northern Trust.

Banks constitute the largest proportion of total consumer credit lending, to which various finance companies, credit unions, savings institutions, and the government also contribute.

It follows, Kasriel said, that bank lending is the most important factor for economic growth. "It's what has been lacking up until recently in this economy."

Others are not so certain, and expect credit growth to taper off given two persistent drags on the economy: housing and unemployment.

"The consumer credit rebound is not sustainable," said Thomas Berner, an economist at UBS. While consensus estimates $10.45 billion will be added to the Fed's borrowing total, Berner is forecasting $6 billion.

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"Consumer credit cannot grow as quickly as it did before because home equity was its major driver. Now a fourth of all mortgages outstanding are underwater," said Berner.

The latest industry reports show 1.1 million American borrowers are "underwater," meaning they owe more on their mortgages than their homes are currently worth.

Berner's lower estimate also hangs on the premise that the type of credit being borrowed — mostly non-revolving (auto and student loans) — is not as stimulative as short-term revolving credit card debt.

"Government-subsidized student loans are a huge part of consumer credit. And since state budgets continue to be strained, that will continue," said Berner.

On this point, economists agree: student loan debt inflates credit levels with little economic impact.

In total, the Federal Reserve's [cnbc explains] borrowing report covers auto loans, student loans and credit cards, and excludes real estate loans, such as mortgages and home equity loans.

Economist Peter Morici from the University of Maryland points out that high student debt levels are a factor of the unemployment rate — which is still 8.3 percent.

"People are going back to school because they can't find a job," he said. "Most consumer credit has been auto loans and higher education."

Even on the heels of Wednesday's ADP report, which showed private sector jobs rising by 216,000, Morici still contends that depressed income levels continue to hamper spending and growth.

"Consumption has been constant. There's been no real growth in personal income and spending for the last three months," he said.

For the bears, just because borrowing is up doesn't necessarily mean the economy is improving.

But all three economists actually agree on the bullish credit scenario: if credit card debt shoots up today, they expect consumer spending to follow in the second half of this year.

"If we get a big jump in credit card debt, the consumer will be spending more. In 2012, we're looking at 2 to 2.4 percent growth in consumer spending," concluded Morici.