Consumers more than double pace of borrowing

Use of credit cards, installment loans rose at 6.4% rate in July

September 09, 2004|By BLOOMBERG NEWS

WASHINGTON - U.S. consumers more than doubled their pace of borrowing through credit cards and installment loans in July, adding $10.9 billion to nonmortgage debt, the Federal Reserve reported yesterday.

The increase, the largest since January, followed a gain of $4.3 billion in June and brought the level of outstanding credit to $2.04 trillion. Measured at an annual rate, borrowing rose 6.4 percent in July after rising 2.6 percent in June.

The more rapid growth in debt coincides with a rebound in consumer spending, which accounts for two-thirds of the U.S. economy. Alan Greenspan, chairman of the Federal Reserve, said yesterday that the economy "has regained some traction" after the weakest quarterly growth in more than a year.

"Consumers charged up a storm in July, taking advantage of heavily discounted merchandise," said Richard Yamarone, chief economist at Argus Research in New York. "A good deal of the July increase `borrowed' from the June soft patch, when consumers were greatly concerned over the jobs situation and higher prices at the pump."

Spending on autos

Spending on automobiles contributed to the July increase in outstanding debt. Nonrevolving credit, which includes auto loans, rose by $5.3 billion in July after rising by $4.4 billion in June. The annual rate of increase in July was 5 percent, up from 4.1 percent in June.

Revolving credit, which includes charge cards, rose by $5.6 billion in July after five months of decline. Borrowing in this category fell $118 million in June. The July rate of increase was 9 percent, compared with a decline of 0.2 percent in June.

The Fed's monthly report doesn't track loans secured by real estate, such as home equity lines of credit, which have grown in popularity.

The Mortgage Bankers Association reported yesterday that applications to refinance houses increased 8 percent last week and accounted for 41 percent of all mortgage business. Such applications peaked in March.

Yamarone said the surge in borrowing in July "may have been a last hurrah" before consumers pulled back in the second half of the year.

Reduced borrowing

The Cambridge Consumer Credit Index found that consumers expected to reduce their borrowing this month after an August increase, according to the index, based on a telephone survey of 1,000 or more randomly selected consumers. The Debt Relief Clearinghouse, of Agawam, Mass., which refers people to debt-management companies, sponsored the survey.

Consumers are watching their finances, other measures suggest. The rate at which cardholders repaid debt climbed to a record in June, and the delinquency rate fell to a four-year low. The so-called payment rate climbed to almost 17 percent.

The delinquency rate, or proportion of loan balances in which a monthly payment was 30 days or more past due, fell to an annualized 4.37 percent from 4.4 percent the previous month and 5.12 percent in June 2003.

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