Newspaper article THE JOURNAL RECORD

Analysts Doubt Consumer Debt Will Stymie Economic Rebound

Newspaper article THE JOURNAL RECORD

Analysts Doubt Consumer Debt Will Stymie Economic Rebound

Article excerpt

WASHINGTON _ Consumers may be saying "charge it" more and more, but growing household debt isn't likely to threaten a second-half economic rebound.

In April, consumer credit as a percentage of personal income climbed to near-record highs. A Federal Reserve report today is likely to show consumer credit rose in May for the 30th month in a row.

Still, analysts said credit card use is up simply because plastic has become more convenient than cash. "I don't think debt is much of a concern," said Bill Sharp, an economist with Smith Barney Inc. in New York.

Installment credit, which includes credit-card and automotive loans, but not home equity loans, probably rose by $9 billion during May, according to analysts surveyed by Bloomberg Business News.

There's no disputing that consumer debt is close to record highs. In April, consumer credit was about 15.9 percent of total personal income, close to the recent high of 16.1 percent in September 1989.

"With each cycle the peak of the growth rate (in consumer credit) is getting higher and higher," said Sharp. The rate of increase in credit peaked in September 1984, when installment borrowing rose 21 percent from the previous year. Between April 1994 and April 1995, credit grew by 15.8 percent.

What's less clear is whether the expansion of consumer borrowing bodes badly for household finances.

That's because the fastest growing area of consumer borrowing is credit cards, and their increasing use isn't necessarily a sign that more Americans are living beyond their means.

Credit card balances increased at a 21.8 percent annualized rate during April, while total consumer credit increased at a 14.1 percent rate.

Analysts aren't troubled by the fast growth of credit card balances because the reasons for credit card use have changed since the 1980s. …

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