Consumer Credit in July Rose Less Than Forecast
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Consumer borrowing in America increased about half as much as forecast in July as banks restricted lending and Americans cut back on spending.
Consumer credit rose $4.6 billion for the month, the smallest gain this year, to $2.59 trillion, the Federal Reserve said yesterday in Washington. In June, credit climbed by $11 billion, previously reported as an increase of $14.3 billion. The Fed’s report doesn’t cover borrowing secured by real estate. Automobile sales slumped in July to the lowest level in 15 years as employers cut jobs and fuel prices soared. Consumer spending, which accounts for more than two-thirds of the economy, will probably continue to slow as home prices fall and banks restrict lending, hurting growth in the second half of the year.
“A slowdown in the supply of credit is one of several factors that we think argues for a slowdown in consumer spending,” an economist at Lehman Brothers Inc. in New York, Zach Pandl, said. “There will be a period of weak consumer spending ahead.”
In advance of the report from the Fed, economists forecast an increase of $8.5 billion in consumer credit during July, according to the median of 35 estimates in a survey conducted by Bloomberg News.
According to the Fed, total consumer borrowing rose at a 2.1% annual rate after climbing at a 5.1% pace during June. Revolving debt such as credit cards rose by $3.9 billion and non-revolving debt, including auto loans, increased by $678 million for the month, also the smallest gain this year.
“Consumers are really caught between a rock and a hard place,” the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, Chris Rupkey, said. “Consumers faced with rising unemployment have backed away from spending. On top of this, banks are pulling credit lines, and refusing to increase credit limits for even well-heeled credit card customers.”
Banks are charging higher interest rates to bolster profits as mortgage losses mount, signaling Americans will reduce borrowing even more in coming months.
Yields relative to benchmark rates on securities backed by credit card debt rose to records amid concern that falling household income will make it harder for consumers to pay their debts.
