Consumer Borrowing Up Sharply in July, Fed Says

Consumers stepped up their borrowing in July by the largest amount since the beginning of the year, according to a report Wednesday from the Federal Reserve.

At the same time, U.S. mortgage delinquencies rose in the second quarter of 2004 from the first quarter, according to the Mortgage Bankers Assn.

Consumer credit increased at a seasonally adjusted annual rate of 6.4% in July, or by $10.9 billion, from the previous month. That marked the biggest gain since January, when consumer borrowing surged at a 15.8% pace.

July’s increase pushed total consumer credit outstanding to a record $2.04 trillion.

The Fed’s report includes credit card debt and loans for such things as boats, cars and mobile homes. It does not include real estate loans.

The figures for July represented a big pickup in borrowing from June, when consumer credit increased at a 2.6% rate, or by $4.3 billion.

“We knew there was an improvement in consumer spending in July, but the question is, can we sustain that momentum?” asked Carl Tannenbaum, chief economist at LaSalle Bank.

Early readings on retail sales in August have been mixed, he said. Economists watch consumers’ behavior closely because their spending accounts for roughly two-thirds of all economic activity in the U.S.

Demand for revolving credit, such as credit cards, led the way in July. Such credit jumped at a rate of 9%, or $5.6 billion. That compared with a 0.2% rate of decline in June, or a drop of $117.9 million.

In a separate report, U.S. chain store sales posted slight gains in the first week of September, supported by strong results at discount stores.

Sales at major retailers rose 3% on a year-over-year basis for the week ended Sept. 4, up from the preceding week’s 2% pace, Redbook Research said. Sales in September have been up 1% compared with August.

The Redbook data are compiled from a sample of store sales at general merchandise retailers representing about 9,000 stores.

Meanwhile, the Mortgage Bankers Assn. said its measure of outstanding mortgages that were delinquent rose to 4.43% on a seasonally adjusted basis for the second quarter from the first quarter’s 4.33%. The latest reading is down from 4.97% for the same period last year.

The percentage of severely delinquent loans, which were 90 days or more past due, or in foreclosure, fell during the second quarter from the first quarter, but the percentage of mortgages that were 30 to 59 days delinquent climbed between the first and second quarters.

The association’s survey was based on a sampling of 37.8 million loans.

New applications for home loans rose last week to their highest level in four months even though mortgage rates ticked upward from their recent lows.