updated 5/7/2010 3:28:50 PM ET 2010-05-07T19:28:50

Consumer borrowing posted an unexpected increase in March, only the second gain in the last 14 months. It could be a sign that households are feeling more confident about boosting spending, a key development needed to support a sustained economic recovery.

The Federal Reserve reported Friday that consumer borrowing rose by $1.95 billion in March, better than the $3.85 billion drop that economists had expected.

Consumer credit was also up in January but other than those two gains, it has been falling steadily since February of last year as households have cut back on their borrowing to repair their battered balance sheets.

The March gain represented a 1 percent rise at an annual rate following a 3 percent drop in February and a 3.2 percent January increase.

The strength came from a big 3.9 percent jump in nonrevolving credit, the category that includes auto loans. Revolving credit, which covers credit card debt, actually fell by 4.5 percent, the 18th consecutive decline.

The overall increase of 1 percent pushed total credit up to $2.45 trillion at the end of March, down 3.4 percent from a year ago.

Economists are hoping that consumer borrowing will soon stabilize and resume growing although they caution that the rebound will be restrained by tighter credit conditions imposed by many banks in the wake of the financial crisis.

While economists for years have worried about the low rate of personal savings in the United States, they are now concerned that unless borrowing stabilizes and begins to grow, it could derail the recovery because it would crimp consumer demand. Consumer spending accounts for 70 percent of total economic activity.

The Fed's credit report covers credit card debt, auto loans and other debt not secured by real estate. Mortgages and home equity loans are not included in the Fed's borrowing report.

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