U.S. consumer credit fell in September by the largest amount in 14 years, as nonrevolving credit, such as car and boat loans, plummeted, the Federal Reserve said.
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Borrowing by Consumers Eases, But Credit-Card Balances Jump
By MARK WHITEHOUSE
November 8, 2006
American consumers eased off on borrowing in September, though a persistent rise in credit-card balances suggests some are feeling the impact of the housing market's downturn.
The Federal Reserve reported U.S. consumer credit, which excludes mortgage debt, fell at an annualized rate of 0.6% in September to $2.366 trillion, or about $21,000 a household. That was up 3.7% from a year earlier, well below the average year-to-year rise of 7.1% over the past decade.
Nonrevolving credit -- mostly auto loans -- fell at an annualized rate of 3.2% in September, reflecting slow auto sales.
Credit-card balances and other so-called revolving credit, however, rose significantly, at a 4% annualized rate. That suggests that as housing prices fall, people are less able to extract cash through home-equity loans and cash-out refinancings, causing some financially stretched folks to turn to their credit cards.
"It's a pretty benign story, but it's one that we need to stay on top of," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. He noted that consumers as a whole are doing pretty well: Personal income, which was up 6.8% in September from a year earlier, has outpaced growth in both credit-card and other consumer debt.
In recent years, rising home prices, easy credit and tax breaks on mortgages have motivated people to borrow against their homes instead of running up credit-card balances and taking out auto loans. As a result, total mortgage debt has almost doubled over the past five years, while consumer credit has risen by less than a third.
As of the second quarter, mortgage payments had reached 11.6% of disposable income, the highest level since at least 1980. Consumer-debt payments had fallen to 6.5% of disposable income, the lowest level since late 2000.
Write to Mark Whitehouse at mark.whitehouse@wsj.com
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