Consumer Debt Is Down for 3rd Month in a Row

Consumer credit declined at a 3.7% annual rate in February, the first time in four years that installment debt has decreased for three straight months, the government said Friday.

Analysts said the report wasn’t surprising. “It is consistent with retail sales being weak, with the decline in the employment numbers and personal incomes (during the recession),” said economist John Silvia of Kemper Financial Services in Chicago.

The Federal Reserve said consumer credit dropped a seasonally adjusted $2.3 billion. It was the second consecutive month it had decreased at a 3.7% rate.

The decrease followed a 0.6% decline in December, the first drop since a 0.2% dip in February, 1989.

The January plunge had been the steepest since a 5% decline in February, 1987.

The Fed said the three-month drop was the first since installment debt fell from December, 1986, through February, 1987.

Consumer credit includes all consumer loans except mortgages and home-equity debt. It’s tracked closely because it helps finance much of the nation’s consumer spending, which represents two-thirds of economic activity.

There have been signs since the end of the Persian Gulf War that consumer confidence and willingness to spend might be picking up. Retail sales rose for the first time since October, and both new- and existing-home sales were up.

Still, chief economist Sung Won Sohn of Norwest Corp. in Minneapolis expects consumer credit to be weak for months to come.

“I don’t see consumers going back to buying big-ticket items until the (economic) recovery is well-established,” he said.

All major categories of consumer credit declined in February except for credit card debt.