WASHINGTON -- U.S. consumer borrowing grew at the slowest pace in more than three years in August as demand for credit card and auto loans stalled, Federal Reserve figures showed Monday. Americans' consumer credit rose $3.3 billion in August to $1.167 trillion, down from July's revised increase of $7.3 billion.
Previously, the Fed said July borrowing rose $7.7 billion. Analysts had expected an August increase of $7.0 billion. After a three-year borrowing binge that nearly doubled the borrowing total, the August slowdown suggests "consumers' debt burden is much too high and people can't keep up that pace of borrowing," said Kevin Flanagan, an economist at Dean Witter Reynolds in New York. "Consumer spending could slow accordingly." The borrowing slowdown may be linked to a new cautious attitude by lenders in response to an increase in bankruptcy filings by consumers and a surge in credit-card delinquencies.
"Banks have begun to tighten consumer credit standards," said NationsBank Corp. economist Peter Kretzmer in a research report. For retailers, the report may be a warning that consumer demand will prove to be disappointing for the second year in a row during the Christmas shopping season, analysts said. At the same time, while the report is the latest indicator to suggest the economy is losing steam, some analysts caution against reading too much into one month's report. "Consumers are still sufficiently confident to continue purchasing on credit," said Lynn Reaser, chief economist at Barnett Banks in Jacksonville, Fla., before Monday's report. The Fed report showed that credit card borrowings rose $2.8 billion in August, auto loans increased by $200 million, and other types of personal loans rose by $400 billion.
The Fed's report doesn't track loans secured by real estate. The report also showed that the pace of consumer credit was rising at a 3.5 percent annual rate during August. That's the slowest pace since May of 1993 and down from the 7.6 percent pace of borrowing in July.
Economists use the Fed's consumer credit statistics to monitor the health of household finances as a way of making predictions about future consumer spending, which accounts for two-thirds of overall economic activity in the U.S. In response to a rise in loan delinquencies earlier this year, the Federal Deposit Insurance Corp., the agency responsible for insuring Americans' bank deposits, stepped up its monitoring of bank credit card operations. In addition, on Sept.
Comptroller of the Currency Eugene Ludwig urged banks to cut back on sending pre-approved credit cards to consumers, saying some bankers are taking undue risks in the rush to sign up new customers. Although there aren't "systemic" problems with consumer debt, "there are problems with credit card lending that neither the regulators nor the banking industry can ignore," said Comptroller Eugene Ludwig.
There have been other signs of stress. Personal bankruptcies are expected to exceed one million this year, an annual record, analysts said. Additionally, Chrysler Financial Corp., the main lending unit of Chrysler Corp., saw its credit losses double during the first half. Delinquent car payments and repossessions also increased. General Motors Corp. and Ford Motor Co.
have also experienced customer credit problems as well, analysts said. The again, some of the increase in credit card borrowing also reflects greater use of plastic for convenience, such as self- service gasoline, debt that is often repaid monthly. Separately Monday, a survey showed the number of planned job cuts by major U.S. businesses declined in September from a year earlier as the pace of merger-related firings slowed.
Planned dismissals fell 10.7 percent last month to 29,632 from 33,173 a year earlier, according to the survey by the employment firm Challenger, Gray and Christmas. Compared to a month earlier, though, planned job cuts rose 45.9 percent. "Mergers usually signal job cuts, however, an increasing number of companies seem to be rethinking their former stance about the disposability of people," said James Challenger, president of the Chicago-based firm. "Sometimes newly merged companies try to absorb personnel by giving them interim jobs." For the first nine months of the year, 8.3 percent of all job cuts -- 30,175 -- were merger related, down from 13.6 percent of all firings, or 52,634, during the first nine months of 1995, according to the Challenger survey.
Still, government statistics last Friday showed an unexpected slowdown in hiring. The Labor Department said the economy lost 40,000 jobs in September as the unemployment rate rose to 5.2 percent from a seven-year low of 5.1 percent in August.
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