Consumer credit growth slows
WASHINGTON (AP) - February 7, 2008 The Federal Reserve reported Thursday that consumer borrowing
rose at an annual rate of 2.1 percent in December, a sharp slowdown
from an 8.2 percent jump in November. It was the weakest showing
since credit had increased just 1.6 percent in April.
The gain was about half of what economists had been expecting.
They had forecast that total credit would rise by $8 billion and
instead it increased by $4.5 billion to $2.52 trillion.
The report on consumer borrowing was the latest evidence that
economic activity was slowing at the end of last year as households
were struggling with a prolonged slump in housing and a severe
credit squeeze which has prompted banks to tighten their lending
standards.
For all of 2007, consumer credit increased 5.5 percent, up from
an increase of 4.5 percent in 2006. The 2007 performance was the
best showing since a similar 5.5 percent rise in 2004.
Analysts attributed much of the growth in credit in 2007 to
households moving to put more of their purchases on their credit
cards as banks tightened up on their lending standards for home
equity loans in response to the widening crisis in mortgage
borrowing.
That trend was expected to persist this year with continued
increases in revolving credit, the category that includes credit
card debt. However, the category of credit that includes auto loans
was expected to lag, reflecting carmakers' difficulties in selling
new cars.
"Demand for revolving credit will remain sturdy as rising
joblessness, falling house prices and slower income growth force
consumers to turn to credit cards to finance consumption," said
Ryan Sweet, an economist with Moody's Economy.com in West Chester,
Pa.
Consumer credit, as measured by the Federal Reserve, does not
include any debt secured by real estate such as mortgages or home
equity loans.
The December report showed that revolving credit, the category
that includes credit cards, rose at an annual rate of 2.7 percent
in December, a significant slowdown from a 13.7 percent jump in
November.
Borrowing in the category that includes auto loans posted a 1.8
percent rise in December, down from 4.9 percent increase in
November.
(Copyright 2008 by The Associated Press. All Rights Reserved.)