Consumers Ease Up on Borrowing
Borrowing by U.S. consumers increased at a slower-than-expected pace in August, further evidence the economy is cooling from earlier in the year, according to Federal Reserve Board figures released Tuesday.
Consumer credit rose by $4.3 billion for the month to $1.229 trillion after rising a revised $6.0 billion during July. Previously, the Fed said July borrowing had increased $6.5 billion. Before Tuesday’s report, analysts had forecast an increase of $4.6 billion in August.
Analysts watch the Fed’s credit statistics because it helps them gauge changes in consumer spending, which accounts for two-thirds of overall economic activity.
The subdued reading could signal that households are paring back on purchases and being more cautious with their finances. It could also reflect efforts by banks to toughen lending standards after a record 1 million personal bankruptcy filings last year.
“The pace of credit expansion has slowed considerably--from a peak of about 15% year-over-year growth in mid-1995 to roughly 5% at present,” according to a forecast by David Greenlaw, an economist at Morgan Stanley in New York.
Tuesday’s report follows Labor Department statistics released Friday that showed job growth--a major influence on consumer spending--slowed in September from earlier in the year. Also pointing to a more subdued economy, U.S. auto sales dropped 3.8% in September from a year ago.
Still, a slowdown in consumer credit growth may not be entirely caused by restrained spending or tougher lenders. Many consumers have taken advantage of lower interest, tax-advantaged home equity loans, which are secured by real estate holdings and aren’t included in the Fed’s credit statistics, to refinance their other debts.
Fed Vice Chairman Alice Rivlin earlier Tuesday gave the economy a thumbs up. “We really are having a period of good news,” Rivlin said at a regional conference on the Community Reinvestment Act sponsored by the Cleveland Fed. “We have an economy which seems to be growing as fast as it can without generating inflation,” she said.
Also Tuesday, a monthly survey by the employment firm Challenger, Gray & Christmas showed the number of planned job cuts by major U.S. businesses declined 30.1% in September to 20,698 from 29,632 during September 1996. Planned dismissals fell 23.0% from August’s announced job cuts of 26,883, the firm said.
Tuesday’s Fed report showed that credit was expanding at a 4.2% annual rate during August. That’s down from the 5.9% pace of borrowing in July.
By category in August, revolving loans, including credit cards, increased $3.0 billion, auto loans fell $600 million, the first decline since March, and other installment loans increased $1.8 billion, following two months of declines.
