Bank Marketing News: Fed: Consumers Still Borrowing, Pace Slows

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Bank Marketing News: Fed: Consumers Still Borrowing, Pace Slows

Fed: Consumers Still Borrowing, Pace Slows

March 8, 2007: The Federal Reserve reported Wednesday that consumer credit rose at a 3.2 per cent annual rate in January, up from December's 2.5 per cent increase.

The gain was in line with expectations of analysts who believe that debt levels will grow more slowly this year as consumers try to adjust their personal finances in light of record levels of consumer debt.

"The high debt levels that many consumers are carrying will be a factor governing their borrowing behaviour," said Bill Hampel, chief economist for the Credit Union National Association, an industry trade group. "Some of the steam will be coming out of consumer spending."

The category that includes auto loans rose at an annual rate of 4.4 per cent in January, up sharply from December's 2.9 per cent increase.

However, credit growth in December was revised down from $6.0 billion to $5 billion. For all of 2006, credit increased 4.8%. Total outstanding debt reached $2.41 trillion in January.

Credit-card debt has slowed since a 14.7% annualized gain in November, which was the largest since February 2001. Such debt slowed further in January, rising at a 1.1 per cent rate, down from a 1.9 per cent increase in December. Credit card debt had surged ahead at a 14.7 per cent rate in November.

The increased borrowing pushed total consumer debt up by $6.4 billion to a record $2.41 trillion in January.

The Fed's data do not include debt backed by real estate, such as mortgages or home-equity loans. Economists had been expecting credit-card debt to accelerate after banks tightened their lending standards and home values stopped soaring. But low mortgage rates have kept home-equity loans an attractive option for consumers.

"There is a huge amount of available untapped equity," said Hampel, chief economist for the Credit Union National Association, a trade group.

"Consumers are still able to tap into their home equity," he said, adding that consumers are also trying to cut down on their spending.

Credit-card usage might also have been kept down by the low gasoline prices during January, Hampel said. A large amount of charges are made at the gas pump.