Auto Sales Fuel 10.3% Rise in Consumer Debt

Americans took out $5.3 billion more in installment debt than they paid off in February for the third consecutive strong monthly gain, the government said Friday in a report that provided further evidence that consumers have not stopped spending.

The Federal Reserve said consumer debt increased at an annual rate of 10.3% in February, down slightly from the 12.2% rate of growth in January.

In that month, installment debt had risen by $6.24 billion following a December increase of $4.3 billion.

Analysts credited the big increases to strong auto sales. Domestic auto makers reported earlier this week that they had their best January-March sales period since 1985, gains that were helped by incentive programs.

This strong consumer demand has eased fears that the October collapse of the stock market would frighten Americans into slowing spending so much that the country could be faced with a recession this year.

“We are seeing a stronger first quarter than we had initially expected. One of the favorable developments is the final round of tax cuts consumers are getting because of the 1986 tax law,” said Sandra Shaber, an economist with the Washington-based Futures Group.

Consumer spending is crucial to the country’s economic health because it accounts for two-thirds of all economic activity.

Consumer spending grew 1.9% last year, after adjusting for inflation, and Shaber said she is looking for similar moderate growth this year.

She said this forecast could be jeopardized if interest rates start rising significantly, boosting the costs of credit purchases.

Rates have been rising in recent weeks as the Federal Reserve has apparently tightened up slightly on credit to keep the economy from overheating.

The Federal Home Loan Mortgage Corp. said fixed-rate mortgages rose in the current week to 10.19% from 10.05% last week.

In February, the credit report said, auto loans rose by $3.31 billion, a 14.7% annual rate of increase, after rising by $2.7 billion in January.

The category that includes credit card debt rose by $1.49 billion in February, down from a January increase of $2.76 billion.

The debt category that includes loans from banks and credit unions not secured by real estate edged up $564 million in February after a small gain of $807 million in January.

The various changes left total consumer debt at $619.2 billion at the end of February, an increase of 8.9% from a year earlier.