Make your own free website on Tripod.com

"Dedicated to exposing the lies and impeachable offenses of George W. Bush"



Index

Consumer Debt Jumps Sharply
LA Times
From Bloomberg News
August 8, 2006

Consumer borrowing unexpectedly accelerated in June as Americans used credit cards to finance more of their purchases, a Federal Reserve report showed Monday.

Consumer credit, or non-mortgage loans to individuals, rose $10.3 billion to $2.19 trillion, following a revised $5.89-billion increase in May. The two-month gain was the biggest since September-October 2004.

Americans are relying more on credit card debt because rising interest rates and a cooling housing market make it harder for them to take out home-equity loans. Higher prices at filling stations are also prompting consumers to borrow more, economists said.

"The jump in consumer credit coming at a time when consumers are hard hit by soaring gasoline costs could indicate some financial woes on the part of borrowers," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "It looks as if consumers are relying more on credit cards now that other avenues of credit such as mortgage refinancing have been shut off to them."

Consumer credit was expected to rise $3.6 billion in June following an originally reported $4.4 billion increase in May, according to the median forecast in a Bloomberg News survey of 36 economists.

Revolving debt, such as credit cards, rose by $6.65 billion in June after rising $7.42 billion in May, Monday's report showed. Non-revolving debt, such as loans to buy cars and mobile homes, rose by $3.62 billion in June after declining $1.54 billion a month earlier.

Overall U.S. consumer debt rose at an annual rate of 5.7% in June.

The Fed's campaign to quash inflation has driven up the cost of credit card borrowing. The average rate on a credit card increased to 13.14% in May 2006 from 12.76% a year earlier, according to Federal Reserve statistics.

Fed policymakers, who meet today, are likely to leave the benchmark interest rate at 5.25%, according to a Bloomberg News survey of economists, as they pause to assess the effect of past increases on the economy.

The economy expanded at a 2.5% annual pace in the second quarter, down from growth of 5.6% in the previous three months, as consumers put the brakes on spending.

A gain in sales of motor vehicles may have contributed to the increase in non-revolving debt. Automakers sold cars and light trucks at an annual rate of 16.3 million units on June, compared with 16.1 million in May, according to Bloomberg data.

A cooling housing market is reducing demand for home-equity loans. Sales of existing homes, which make up 85% of the market, fell 1.3% in June to the lowest level in five months.

Original Text

Commentary: