Optimism as US credit score average jumps to 4-year high

Improving credit quality gives households the ability to lift borrowing as concerns ease about rising gasoline prices, hard-to-find jobs, and falling home prices. A reacceleration in spending would belie Morgan Stanley economist Stephen Roach’s assertion that consumers will be “zombies’’ for years because of too much debt.

“The financial situation of the household sector has improved far faster and far more than everyone thought it would two years ago,’’ said James Paulsen, chief investment strategist for Wells Capital Management in Minneapolis. “People are still locked into the view that consumers are facing record burdens, and they are not. There has been a change that is sustainable and durable.’’

Bank senior loan officers reported a pickup in demand for auto loans in the second quarter, following first-quarter growth for all consumer lending - the first increase since 2005, according to a quarterly Fed survey released in May. About 29 percent were more willing to make consumer installment loans, the highest percentage since 1994, the survey found.

“The household deleveraging process is much further along than is appreciated,’’ said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pa. “This is evident in the rapid improvement in credit quality. ‘Zombie consumers’ is a mischaracterization of the state of the American consumer.’’

More borrowing could help spur growth slowed by higher gasoline prices, Paulsen said. That will make stocks more attractive than bonds, pushing the Standard & Poor’s 500 Index up about 8 percent to 1,450 by year end, while raising the yield on 10-year Treasury notes more than half a point to 3.75 percent.

Discover Financial Services’ shares have risen about 43 percent this year to $26.55. The credit-card issuer reported a record second-quarter profit of $600 million, as consumers spent more and defaulted less.

Consumers have reduced debt by more than $1 trillion in the 10 quarters ended in March, according to data from the Federal Reserve Bank of New York, and Roach, nonexecutive chairman of Morgan Stanley Asia, says they will retrench “a minimum of another three to five years.’’