Consumer Credit Shrinks Again; Jobless Claims Increase

Consumer credit fell an additional 2.5% in September, the government said Thursday, as Americans continued to pay off their old bills faster than they took on new installment debt.

Meanwhile, applications for unemployment benefits jumped by 14,000 during the latest week, the Labor Department said, in another sign that the job market and economy remain flat.

Economists said the data signaled that consumers, nervous about their jobs, may not increase their spending and borrowing even with a cut in interest rates. The Federal Reserve moved to cut the discount rate to 4.5% Wednesday in an attempt to spur a recovery.

The Federal Reserve said consumer credit fell a seasonally adjusted $1.55 billion in September, the fifth straight decline and the eighth in nine months. All categories except revolving credit, which includes credit cards, posted losses.

“As has been the case since last December, consumers continue to reduce the amount of debt they have outstanding,” Michael K. Evans of Evans Economics wrote in his Washington forecasting company’s Capsule Commentary.

“The declines in net credit extensions reflect the recession’s impact on consumer spending and the consumers’ concern about their personal finances as reported in various surveys,” economist Michael P. Niemira wrote in Mitsubishi Bank’s Weekly Economic Indicator Report.

Consumer credit shrank a revised 1.4% in August, rather than the initial 2.1% estimate, and 1% in July. It had not risen since a 1.9% increase in April.

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

Automobile credit continued to show the largest decline. It was down 9.9%, or a seasonally adjusted $2.3 billion, after dropping 8.6% a month earlier.

Automobile sales, which represent one-fifth of retail sales, have fallen every month this year. Manufacturers of North American-made cars reported Wednesday that sales continued to slide in October.

“Revolving credit outstanding posted its largest dollar gain since March,” the report said.

The category including credit cards jumped 12.6%, or $2.4 billion, after a 6.6% advance in August.

The changes left consumers holding $727.6 billion in installment debt at the end of September, 1.1% less than they held a year earlier.

Adjusting for seasonal factors, the number of Americans filing for unemployment benefits in the week that ended Oct. 26 rose to 420,000 from 406,000.

The increase was expected because claims had dropped 47,000 in the prior week, with the Oct. 14 Columbus Day holiday giving people one less day to apply for benefits.

Analysts predicted another increase in claims for the upcoming week to further offset the usual holiday decline.

The Labor Department said California led the increase in claims in the latest week, reporting a rise of 10,232, followed by New York with 4,105. New Jersey saw a 1,696 increase in part because of layoffs in concrete products industries.

The four-week average of claims fell to 425,250 from 429,250 for the prior four weeks.

The department said the latest figures available showed 3.4 million people were out of work and received benefits in the week in ended Oct. 19. That was an increase of 140,000 from the previous week.