ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, April 6, 1996 TAG: 9604080013
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
U.S. household debt is rising at a faster pace as Americans have racked up growing credit card bills, according to a new report.
Consumer installment credit, which includes credit card balances, auto loans and all household debt not secured by real estate, surged $12.0 billion during February to $1.048 trillion, the Federal Reserve said Friday. The 13.9 percent at an annual rate was the steepest since rising 14.4 percent last June. The $12 billion increase was the biggest since a $12.8 billion advance last May.
``Consumer credit is growing now at a pace that's reflective of the strong auto sales in the last couple of months,'' said Bill Sharp, an economist with Smith Barney in New York.
The speedy processing of income tax refunds also means people are using the cash as part of the down payment on an automobile or boat, and are borrowing the rest, he said.
Analysts contend that consumers eventually will have to rein in their borrowing activity as debt levels climb and income growth remains relatively slack. In fact, there already have been reports of growing delinquency rates in several areas.
This generates concerns about the pace of consumer spending, which represents about two-thirds of the nation's economic activity.
Today's report had no immediate impact on bond yields because the Public Securities Association recommended that bond trading close at noon EST, Good Friday - hours before the credit report was released. Also, Wall Street traders rarely react to the credit report because it comes with a two-month lag.
Analysts surveyed before the report by Bloomberg Business News had anticipated an increase of $9.2 billion.
``We don't think consumers are tapped out,'' Chicago Federal Reserve Bank president Michael H. Moskow said Thursday in anticipation of the report. ``Given a healthy income picture and fairly steady employment growth, we expect consumer spending to increase somewhat faster than last year.''
After being snowbound by January's harsh winter weather, many Americans were in the mood to spend when they returned to malls in February.Recent Commerce Department figures showed consumer spending rose at a 1.1 percent pace in February, the biggest gain in two years. Retail sales rose 0.8 percent during the month.
More recently, most major automakers, except for strike-hobbled General Motors Corp., reported strong U.S. sales during March, pushing up the industry's sales 4.3 percent from March 1995. And a gauge of U.S. retail sales published by the Johnson Redbook Service showed sales increased 6.4 percent last week from the same week a year earlier -- slightly less than most companies had expected.
To be sure,
The increase in spending and debt accumulation may be short-lived. ``Tax refunds on 1995 returns are heavily skewed toward the early part of the year relative to recent years, temporarily boosting spendable incomes,'' said David Levy, director of research with the Jerome Levy Economics Institute of Bard College.
``Overstretched household finances will cause a retrenchment in consumer borrowing and spending this year,'' he said.
In the final quarter of last year, for example, consumers fell behind on their credit card bills at a 3.34 percent pace, tying a 10-year high, the American Bankers Association said last month.
In today's report, the
The Fed also said consumer installment credit was rising at a 13.9 percent annual rate, based on February's increase.
By category, credit card use advanced by $6.4 billion in February and auto loans increased by $3.0 billion, while other types of personal loans rose by $2.6 billion.
In January, consumer credit increased by a revised $10.9 billion. Previously, on March 7, the Fed said consumer borrowing rose $10.3 billion in January.
The Associated Press contributed to this story.
LENGTH: Medium: 79 linesby CNB