Consumer Borrowing Slows; Credit Cards, Auto Loans Stall
Vincent Del Giudice Bloomberg Business News, THE JOURNAL RECORD
WASHINGTON -- U.S. consumer borrowing grew at the slowest pace in more than three years in August as demand for credit card and auto loans stalled, Federal Reserve figures showed Monday.
Americans' consumer credit rose $3.3 billion in August to $1.167 trillion, down from July's revised increase of $7.3 billion. Previously, the Fed said July borrowing rose $7.7 billion. Analysts had expected an August increase of $7.0 billion.
After a three-year borrowing binge that nearly doubled the borrowing total, the August slowdown suggests "consumers' debt burden is much too high and people can't keep up that pace of borrowing," said Kevin Flanagan, an economist at Dean Witter Reynolds in New York. "Consumer spending could slow accordingly." The borrowing slowdown may be linked to a new cautious attitude by lenders in response to an increase in bankruptcy filings by consumers and a surge in credit-card delinquencies. "Banks have begun to tighten consumer credit standards," said NationsBank Corp. economist Peter Kretzmer in a research report. For retailers, the report may be a warning that consumer demand will prove to be disappointing for the second year in a row during the Christmas shopping season, analysts said. At the same time, while the report is the latest indicator to suggest the economy is losing steam, some analysts caution against reading too much into one month's report. "Consumers are still sufficiently confident to continue purchasing on credit," said Lynn Reaser, chief economist at Barnett Banks in Jacksonville, Fla., before Monday's report. The Fed report showed that credit card borrowings rose $2.8 billion in August, auto loans increased by $200 million, and other types of personal loans rose by $400 billion. The Fed's report doesn't track loans secured by real estate. The report also showed that the pace of consumer credit was rising at a 3.5 percent annual rate during August. That's the slowest pace since May of 1993 and down from the 7.6 percent pace of borrowing in July. Economists use the Fed's consumer credit statistics to monitor the health of household finances as a way of making predictions about future consumer spending, which accounts for two-thirds of overall economic activity in the U.S. In response to a rise in loan delinquencies earlier this year, the Federal Deposit Insurance Corp., the agency responsible for insuring Americans' bank deposits, stepped up its monitoring of bank credit card operations. …