U.S. consumer borrowing rose, led by credit cards!
March 7, 2008 - U.S. consumer borrowing rose in January as Americans spent twice as much on their credit cards as they did a month earlier.
Consumer credit increased by $6.9 billion to $2.52 trillion, the Fed said today in Washington. In December, credit gained $3.7 billion, less than a previously reported increase of $4.5 billion. The figures don't include borrowing secured by real estate, such as home-equity loans.
People once dependent on home-equity financing are turning to other forms of short-term financing after the collapse in subprime mortgages made it harder to qualify for loans.
Personal income in January rose at a slower pace than inflation, and credit card usage in January rose for a second straight month.
“There's not much gas left in the tank,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “In the early stage of a recession, consumers tend to rely on credit cards to see them through the hard times.''
Economists had forecast January credit would expand by $7 billion, according to the median of estimates in a Bloomberg News survey.
After adjusting for inflation, spending stalled for a second month in January, increasing concern that the economy is headed for a recession. Consumer purchases account for two- thirds of the economy.
Total borrowing increased at a 3.3 percent annual rate in January after rising at a 1.8 percent pace during December. By category, revolving debt such as credit cards rose $5.5 billion during January and non-revolving debt, including auto loans, increased $1.4 billion for the month.
It was the second-biggest January increase in revolving credit in the past decade, a period in which that category of borrowing averaged $3.2 billion for the first month of the year. Revolving debt is the kind that's capped at a designated amount and on which periodic payments are made.
Earlier today, the Labor Department said the U.S. lost jobs in February for the second consecutive month, adding to evidence the economy is already in a recession. Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January.
The central bank's Federal Open Market Committee is scheduled to meet to discuss interest-rate policy March 18, and economists anticipate the central bank will again lower its benchmark lending rate.
At its Jan. 30 session, the Fed panel lowered the rate by a half percentage point to 3 percent for the fifth reduction since September. Commercial banks, in turn, lowered their prime lending rate to 6 percent from 6.5 percent.
The housing contraction, now in its third year, has hurt both borrowers and lenders. Mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable- rate loans surrendered their properties, the Mortgage Bankers Association said yesterday.
Late payments and charge-off rates on credit cards will probably increase for the next year, according to a Feb. 11 statement by Moody's Investors Service in New York.