Big jump in consumer borrowing
By Jeannine Aversa
WASHINGTON Consumers, despite job worries, increased their borrowing in April by the largest amount since the beginning of the year.
The Federal Reserve reported yesterday that consumer credit shot up by $10.7 billion, seasonally adjusted, or at a brisk annual rate of 7.3 percent. That marked the biggest increase in both dollar terms and percentage terms since January.
"Consumers were responding to very attractive interest rates for various goods, especially automobiles," said Lynn Reaser, chief economist at Banc of America Capital Management.
The increase in borrowing pushed total consumer debt up to $1.76 trillion.
April's rise marked a big leap from March, when consumer borrowing rose at a rate of just 0.8 percent, or by $1.1 billion, as war uncertainties turned consumers cautious.
The advance in April was led by demand for non-revolving credit, which includes loans for new cars and vacations. Nonrevolving credit jumped at a rate of 10.9 percent, or $9.3 billion, in April.
"Consumers couldn't ignore the heavy discounts and incentives on automobiles, including free financing," said Richard Yamarone, economist with Argus Research Corp.
April's increase in nonrevolving credit marked an about-face from March, when such borrowing fell at an annual rate of 1.7 percent, or $1.5 billion.
Demand for revolving debt, such as credit cards, went up by $1.4 billion, or at a 2.3 percent annual rate, in April. That compared with a 4.4 percent growth rate in March and a $2.6 billion increase.
Although sales at retailers were sluggish in April, automobile dealerships posted solid gains, helped out by generous incentives, economists said. That brisk borrowing for cars showed up in yesterday's consumer credit report, economists said.
The Fed's report includes credit-card debt and loans for cars, boats and mobile homes. It does not include real estate loans such as home mortgages or increasingly popular home equity loans.
Consumer spending accounts for two-thirds of all economic activity in the United States and is the main force powering the economy, which is struggling to get back on firm footing.
Economists are keeping a watchful eye on how consumers react to a worsening job market.