Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, July 12, 1995 TAG: 9507140009
SECTION: BUSINESS PAGE: C-7 EDITION: METRO
SOURCE: Bloomberg Business News
DATELINE: WASHINGTON LENGTH: Medium
Consumer installment credit rose $11.51 billion for the month, exceeding analysts' expectations. In April, borrowing rose a revised $11.60 billion, the agency said Tuesday.
Analysts are divided about the meaning of the prolonged surge in borrowing. Some say it could be a sign of distress if consumers borrow more to meet routine expenses. Others, though, say it may simply be signalling a shift in habits, as people find it more convenient to charge daily purchases such as groceries.
Still, analysts said the borrowing spree can't go on forever. ``This credit trend should prove unsustainable ... prolonging the consumers' soft spending spell right on through the summer,'' said a research report by Gary Ciminero, chief economist at Fleet Financial Group in Providence, R.I.
Statistics in the latest Fed report were revised back to January 1992. Without those revisions, May's gain would have been the 30th consecutive monthly increase.
Analysts pay particular attention to the Fed's credit statistics because consumer spending accounts for two-thirds of U.S. economic activity. In May, spending rose 0.7 percent, according to Commerce Department figures published last week.
However, the consumer credit numbers tend to be erratic on a month-to-month basis, and analysts said the statistics should be viewed cautiously over the short haul.
The Fed also said consumer installment credit rose at a 14.6 percent annual rate in May, following a 14.9 percent gain from April.
In Tuesday's report, the Fed said installment credit totaled $956.822 billion in May.
By category, revolving or credit card use showed the biggest increase, rising $6.636 billion in May.
Credit card use has risen markedly in the 1990s as card issuers offer cash rebates and discounts and supermarkets install credit card scanners at cash registers.
Credit card rates are also moving lower, as competition between issuers heats up. Rates still average about 18 percent to 19 percent on unpaid balances, though some card issuers lure potential customers with initial rates of as low as 5.9 percent, said Bill Sharp, an economist at Smith Barney Inc. in New York.
Meantime, auto borrowing rose $3.186 billion in May, while other borrowing, such as mobile home loans, increased $1.686 billion, the Fed said.
The report doesn't cover home equity lines of credit, which have grown in popularity over the past decade.
by CNB