Consumer Debt Dip Is 1st Since ’58 : * Economy: Americans are paying off old obligations and they are not taking on any new ones, economists say.
The amount consumers owe on credit cards and other installment loans fell in 1991 for the first annual decline since the recession of 1958, the government said Friday, as consumers paid off old debts and avoided new ones.
Economists said consumers’ apparent reluctance to spend might undermine President Bush’s economic recovery plan, which is intended to make it easier for consumers to borrow and gives them more money to spend.
Delos Smith, senior business analyst with the Conference Board business research organization in New York, said the President’s plan to reduce the amount of federal income tax withheld from paychecks wasn’t likely to encourage spending. “If you give people more money, they are likely to use it to pay off debt than to buy something,” he said.
The Federal Reserve reported Friday that consumer installment credit dropped 2.8% in December and 0.8% for the year, and came as borrowing by business and state and local governments also declined. At the end of the year, installment credit stood at $742.55 billion.
Though at least five recessions have occurred in the past 33 years, consumer borrowing hasn’t registered a yearly decline until now. Economists said that consumers find the current recession more frightening than past economic downturns, in part because it is affecting white-collar professionals who are responsible for much consumer spending and who came out of past recessions unscathed.
Irwin Kellner, chief economist for Chemical Bank in New York, said the eight-year gap between the end of the last recession and the onset of the current slump in mid-1990 gave consumers a false sense of economic well-being. “The recession came as a shock,” he said.
The government figures on consumer credit include all consumer loans, such as auto and personal loans, excluding mortgages and home-equity loans.
The overall slide in consumer credit was expected, because the monthly figures have declined for much of the year. Economists said the $207-million slide in revolving credit--primarily credit cards--during the height of the holiday shopping season last December was a surprise. Revolving credit had been increasing over most of the year as strapped consumers drew down their credit lines.
Kellner said the slide in consumer borrowing in December resulted from fears about layoffs that rippled through the nation’s work force after International Business Machines and General Motors announced retrenchments.
Kellner said if consumer skittishness continues, and if the jobless figures do not improve, the fragile recovery may falter by mid-year. “I’m concerned we may have another recession,” he said.
Credit counselors said inquiries for their services surged last year, indicating that consumers are trying to get debt under control. Paul Richard of the National Center for Financial Education in San Diego said requests for help with family budgeting and other financial matters have swelled to 100 a day from 45 a year ago.
