Consumer credit rises less than forecast August increase is $4.3 billion

October 08, 1997|By BLOOMBERG NEWS

WASHINGTON -- Borrowing by U.S. consumers increased at a slower-than-expected pace in August, further evidence that the economy is cooling from earlier in the year.

Consumer credit rose by $4.3 billion for the month to $1.229 trillion after rising by a revised $6.0 billion during July, the Federal Reserve reported yesterday.

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.

Yesterday's subdued reading could signal that households are paring back on purchases and being more cautious with their finances.

"Credit demand is starting to get under control and grow at a more even pace," said Scott Brown, an economist at Raymond James & Associates in St. Petersburg, Fla.

That's a healthy sign, analysts said. Separately yesterday, Fed Vice Chairman Alice Rivlin gave the economy a thumbs up. "We really are having a period of good news," Rivlin said at a conference in Dublin, Ohio. "We have an economy which seems to be growing as fast as it can without generating inflation."

Also yesterday, new figures showed that planned job cuts by major U.S. businesses declined 30.1 percent in September to 20,698 from 29,632 during September 1996, according to the monthly survey by the employment firm Challenger, Gray and Christmas. Planned dismissals fell 23.0 percent from August's announced job cuts of 26,883, the firm said.

The Fed said credit was expanding at a 4.2 percent annual rate during August. That's down from the 5.9 percent pace of borrowing in July. By category in August, revolving loans, which include credit cards, increased $3.0 billion, auto loans fell $600 million -- the first decline since March -- and other types of installment loans increased $1.8 billion, following two months of declines.

The slower pace of borrowing could also reflect efforts by banks to toughen lending standards after a record 1 million personal bankruptcy filings last year.

On a year-over-year basis, credit growth has slowed to about 5 percent, from a peak of 15 percent in 1995, according to a forecast by David Greenlaw, an economist at Morgan Stanley in New York.

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 other debts.

Though many banks have turned more cautious in extending credit to consumers, problem loans persist. The number of credit card holders who fell behind on their payments rose almost to a record in the second quarter of this year, according to a survey by the American Bankers Association released Sept. 17.

The banking industry group said 3.69 percent of credit card accounts were delinquent during the second quarter -- the second highest rate since record-keeping began in 1980 -- up from 3.51 percent in the first quarter.

Pub Date: 10/08/97

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