Consumer Borrowing Sees Record Drop as Auto Loans Decline

Consumer borrowing plunged at a record annual rate of $7.2 billion in October, reflecting a big drop in auto loans.

The Federal Reserve reported Wednesday that the decline was the biggest ever in dollar terms and included a record drop of $5.6 billion in the category that includes car loans.

The declines translated into a 4% plunge in overall borrowing, the biggest percentage drop in nearly 15 years, and a decline of 4.9% in the category that includes auto loans, the biggest percentage drop in 13 years.

The drop surprised analysts, who had been expecting consumer spending to rise in October at an annual rate of $5 billion.

Although retailers are reporting a mixed start to the holiday shopping season, analysts cautioned against reading too much into the consumer credit decline.

“This is a payback for the aggressive discounts consumers were offered to buy cars during the summer,” said Mark Zandi, chief economist at Moody’s Economy.com.

Americans are shouldering record-high levels of consumer debt, and personal savings rates have fallen to record lows, but analysts said consumer spending, which accounts for two-thirds of the total economy, should continue rising even if the pace slows a bit.

“I have full faith in the ability of the American consumer to keep spending,” said David Wyss, chief economist at Standard & Poor’s in New York.

The 4% total drop followed a 2.2% rise in September. The 4.9% drop in auto loans and other non-revolving credit followed a 1.1% drop in September. These loans had shot up by 6.2% in August as consumers responded to attractive incentives.