Growth in Consumer Debt Slows Sharply

The growth in consumer debt slowed sharply in May, climbing at an annualized rate of just 4.9%, according to government data released Monday. Some analysts attributed the slowdown to a tightening of credit standards by lenders worried about rising delinquency rates.

The May increase in debt came after a 7.2% growth rate in April, and both are the slowest rates of increase since mid-1993, the Federal Reserve Board said. The May advance left total consumer debt--defined as loans not secured by real estate--at $1.15 trillion, up $4.7 billion for May, compared with revised figures for April showing an increase of $6.7 billion.

Analysts had expected an increase of $8.3 billion for May.

Consumer debt rose at double-digit rates for much of the last year as credit card companies competing for business kept offering enticements to attract new customers. Lenders have become more cautious in recent months, however, analysts said, as delinquency rates have risen.

“The credit card companies are tightening their standards. They are offering fewer new credit lines than they were just six months ago,” said Paul Getman, an economist at Regional Financial Associates in West Chester, Pa.

Getman predicted that consumer spending will begin to slow if lenders continue to tighten their standards. Consumer spending accounts for two-thirds of U.S. economic activity and has been a major force in the current expansion.

A Fed survey of senior bank officers done in May found that “a large share of respondents expect a further rise in delinquencies over the coming year.”

The category of consumer credit that includes credit cards rose at an annualized rate of 16.1% in May, down from 20.3% for April. The increase put debt in this category at $444.4 billion, a gain of $5.9 billion from April.

The slowdown was more pronounced for automobile loans, which were rising at an annualized rate of 3.4% in May. The increase for April was 10.8%. May’s advance put the auto debt total at $360.5 billion.

The category of debt that includes loans for mobile homes, education, boats, trailers and vacations fell for the second straight month, declining at an annualized rate of 8%, compared with the 13.1% rate of decline for April. The decreases left debt in this category at $340.1 billion.

According to a separate report issued Monday, the number of jobs U.S. businesses plan to cut declined 0.5% in June from a year earlier, offering further evidence that the U.S. economy is expanding.

The number of announced firings was 40,163 last month, down from 40,375 for June 1995, according to a survey by Challenger, Gray and Christmas, a Chicago-based employment firm.

The total for the month is the highest since January. Compared with the figures of a month earlier, the number of planned job cuts increased by 31%. In addition, for the first six months of the year, the number of planned firings was running 27.7% ahead of that for the first six months of last year.

“Employers continue to eliminate unproductive areas while concentrating on the goods and services that are likely to enhance the bottom line now and in the future,” James Challenger said.

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Job Losses

Job reductions announced by major firms, in thousands:

June: 40.2

First-half total: 270.5

Source: Challenger, Gray & Christmas