William, here's a good read for ya.
Consumer Borrowing Down 1.2 Percent
By Jonathan Nicholson
WASHINGTON (Reuters) - U.S. consumers unexpectedly cut back on their borrowing in June, marking the first decline in consumer credit outstanding since 1997, the Federal Reserve said on Tuesday.
The Fed said consumer credit outstanding fell by $1.5 billion in June, or at a 1.2 percent annual rate. It was the first decline since November 1997 when borrowing slipped by about $540 million.
The cutback raises the specter of a potential slowdown in household spending, which thus far has been one of the few pillars of growth in the slumping economy. While businesses have cut back on expenditures for new equipment, consumers have continued to spend, keeping economic growth barely in positive territory. Economists polled by Reuters had expected debt outstanding to rise by $7.7 billion.
Most of the credit decrease in June was in so-called nonrevolving debt, of which a bit more than half is auto loan debt. Nonrevolving debt, which also includes loans made for mobile homes, education, boats, trailers and vacations, fell by $3.8 billion in June, the first decline since April and the largest drop since October 1991.
Revolving debt, which includes credit and charge card activity, rose $2.3 billion after a $3.5 billion rise in May.
May's increase in overall consumer credit was revised to $6.8 billion, up from the $6.5 billion advance originally reported.
Economists said the pullback in June was likely temporary, and, given overall high debt levels and the uncertain nature of the economy, possibly needed.
``The majority of consumers are doing fine. We still have 95.5 percent of people working,'' said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis.
Given the shaky state of the economy ``it's very understandable consumers would be curtailing their debt accumulation,'' said Richard Yamarone, chief economist with Argus Research in New York.
``I think it's a temporary breather,'' he said.
Retrenching consumers could offset the intended effect of President Bush's tax cut and prolong the current slowdown. The economy grew at a sluggish 0.7 percent annual rate in the second quarter, though most analysts expect it to pick up steam in the latter part of the year.
The government is sending out an estimated 92 million checks totaling about $38 billion to taxpayers over a 10-week period ending in September. The checks are what the Bush administration is calling an advance payment on its 10-year tax cut plan enacted earlier this year.
But whether those checks will be spent or saved is unclear. The household debt burden, the percentage of personal income taken up by debt service payments, rose to 14.35 percent in the first quarter, its highest level since the fourth quarter of 1986, according to Fed data. |
