Lower Auto Borrowing Helps Rein In Debt Burden

In another sign of moderating economic growth, data released Tuesday showed that the expansion of Americans’ debt burden slowed in May, held back by the sharpest contraction of auto borrowing in nearly five years.

Consumer debt rose at a 2.9% seasonally adjusted annual rate to $1.21 trillion, following increases at a 9.7% rate in April and a 2.7% rate in March, the Federal Reserve said.

Economists said the report provided more evidence that consumers took a breather after a spending spree early in the year that powered first-quarter economic growth to a decade-high 5.9% annual rate. And it shows lenders are becoming more conservative in the face of the continuing rapid growth in personal bankruptcies, they said.

“Consumer spending has certainly flattened. . . . We’ve also seen indications credit card lenders are becoming more stringent in view of the increase in personal bankruptcies,” said economist Sandra Shaber of WEFA Group in Eddystone, Pa. “If you put consumer caution and lender caution together, [the slowdown in debt growth] is not surprising.”

Separately Tuesday, Visa USA said personal bankruptcy filings in federal courts in June were up 16.6% from a year ago. Though a large increase, it represents a significant slowing from the first five months of the year, when year-to-year gains averaged about 25%.

The credit card company had been predicting a 29% increase in bankruptcies this year, but with the June figures, it cut the projected increase to 19%. Nevertheless, that would push bankruptcies to a record 1.33 million.

The slowdown in borrowing means consumers’ debt burden is no longer growing faster than their income, said economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla.