Consumer Debt Growth Slows; Delinquencies Up
Consumer credit rose 6.9% at an annual rate in April, the smallest since mid-1993, and a bankers trade group said credit card delinquencies suggest that many Americans may be reaching their debt limits.
The Federal Reserve Board reported Tuesday that consumer credit increased by $6.6 billion, compared with a $9.3-billion gain in March. April’s gain was the slowest since such debt grew at a 6.8% rate in August 1993.
The increase boosted total consumer credit to $1.14 trillion. Consumer credit includes all household debt not secured by real estate.
Many analysts say consumers are becoming overburdened by debt, which will force them to spend less and slow economic growth, and to miss payments on existing loans.
Consumer spending represents about two-thirds of the nation’s economic activity.
The American Bankers Assn. reported Tuesday that credit card delinquencies jumped to 3.53% during the January-March quarter, from 3.34% in the final three months of 1995.
It was the highest delinquency rate since the 3.58% of the fourth quarter of 1981, when the economy was in recession.
“This latest rise in credit card delinquencies is a signal that more consumers are hitting their debt limits,” said James Chessen, the organization’s chief economist.
But other economists believe the debt accumulation problem is exaggerated. They say credit cards are used more frequently now as a convenience to avoid carrying large amounts of cash or writing a series of checks and are paid off at the end of the month.
“The Fed does not factor out how much is not actual debt,” said Lawrence Chimerine, managing director and chief economist of the Economic Strategy Institute. “It’s normal spending with cards instead of cash and checks.”
Nevertheless, the ABA survey found that closed-end loans 30 days past due increased to 2.14% from 2.12% in the fourth quarter. A year earlier, 1.82% of these loans, which include auto loans, were delinquent.
The Fed said that revolving credit, which includes credit cards, shot up at a 20.2% annual rate in April after rising 15.3% the previous month. The $7.3-billion gain pushed the total to $438.5 billion outstanding.
Auto loans rose at a 10.8% annual rate, more than twice the 5.1% increase of March. The $3.2-billion increase raised the total to $359.5 billion.
But the category that includes loans for mobile homes, education, boats, trailers and vacations fell $3.9 billion to $342.2 billion. The 13.6% rate of decline contrasts with an 8.6% advance a month earlier.
