Consumer Borrowing Advances 5.1% in June

Americans took out $2.99 billion more in consumer debt than they retired in June, the government reported Tuesday, as the pace of borrowing slowed in part because of declining auto sales.

The Federal Reserve Board said consumer credit in June rose at a seasonally adjusted annual rate of 5.1%, down from May’s revised 7.3% rate. The May increase was revised to $4.2 billion from $3.6 billion.

Consumer credit increased 4.3% in April after rising 6.6% in March and 9.5% in February.

Consumer credit rose 8.5% over all of 1988.

Consumer spending is watched closely as a barometer of the economy’s health since it represents two-thirds of overall economic activity.

Takes Heat Off Economy

Economic growth has been slowing recently, prompting concern that Federal Reserve efforts to contain inflation could move the economy into a recession instead of the “soft landing” it seeks.

Economist Sandra Shaber of the Futures Group, a consulting firm here, said the fact that consumer spending does not appear to be collapsing helps take the heat off the economy and reduce inflationary pressures.

The Commerce Department reported earlier that retail sales had fallen 0.4% in June, dragged down in part by poor sales of autos. But excluding the automotive category, overall retail sales actually rose 0.1%, it said.

The Fed reported Tuesday that auto loans fell $267 million in June, a 1.1% decline on a seasonally adjusted annual basis. They had risen 4.5% in May and 3.3% in April.

But Shaber said car sales increased in July, “so I think that the business of liquidating car loans is a very temporary kind of phenomena that’s not going to continue, and you might see a little bit of increase in car loans in July.”

Leading the overall consumer credit increase in June was the category of debt that includes credit cards. It rose $3.1 billion, a 20% annual rate of growth, after increasing 13% in May and 11% in April.

Shaber said this reflects a shift toward retail credit, “to soft goods like apparel and small items.”

Bank and credit union loans not secured by real estate increased $404 million, a 2.5% annual rate of advance but down from 7.2% in May and 2.8% in April.

Borrowing for mobile homes fell for the fifth consecutive month, declining by $257 million, or 12.9% on an annual basis. That followed drops of 2.1% in May and 8.7% in April.

The various changes left total consumer debt in June at a seasonally adjusted $701.19 billion.