[progchat_action] U.S. Consumer Debt Rises More Than Forecast in March
 
Date: Thu, 8 May 2008 09:08:53 -0500 (CDT)


U.S. Consumer Debt Rises More Than Forecast in March

By Vincent Del Giudice
Bloomberg
May 7, 2008

U.S. consumer borrowing jumped more than double the amount economists
forecast in March, indicating a slowing economy is forcing Americans to
accumulate credit-card and other forms of debt.

Consumer credit increased by $15.3 billion for the month to $2.56 trillion,
the biggest monthly rise since November, the Federal Reserve said today in
Washington. In February, credit rose by $6.5 billion, previously reported as
an increase of $5.2 billion. The Fed's report doesn't cover borrowing
secured by real estate, such as home-equity loans.

Consumers are turning to credit cards after banks tightened standards for
home-equity loans and other borrowing. The March figures brought U.S.
consumer borrowing in the first quarter to $34 billion, the most since the
first three months of 2001, when the economy entered its last official
recession.

``Consumers are strapped as incomes are not keeping up with inflation and
this is leading them to rely increasingly on credit to see them through the
worst housing downturn since the Great Depression,'' said Chris Rupkey,
chief financial economist at Bank of Tokyo-Mitsubishi in New York. ``The
days of extracting cash from one's home to spend on goods and services are
long gone.''

Economists forecast an increase of $6 billion in consumer credit for March,
according to the median of 34 estimates in a survey conducted by Bloomberg
News.

By category, revolving debt such as credit cards rose $6.3 billion during
March and non-revolving debt, including auto loans, increased $9 billion for
the month, according to the Fed's statistics.

Household Spending

Total borrowing, a key element of consumer spending, increased at a 7.2
percent annual rate in March after rising at a 3.1 percent pace during
February, the Fed said.

Household spending grew at the slowest pace since the 2001 recession in the
first quarter, according to Commerce Department statistics. Consumer
spending accounts for about two-thirds of economic growth.

A Fed report two days ago showed the proportion of banks making it tougher
for companies and consumers to borrow approached a record in the past three
months.

About half of U.S. banks said they tightened terms on existing home-equity
loans, mainly because of declines in home values below appraised values, as
well as increased defaults and changes in borrowers' finances, according to
the Fed's quarterly survey of senior loan officers released May 5.

Late Payments

``A few years back banks would lend to anyone who could fog a mirror,'' said
Richard Yamarone, chief economist at Argus Research Corp in New York. ``Now,
banks are reluctant to lend to anyone.''

Overdue payments at the six largest U.S. credit-card lenders reached the
highest since November 2004, according to data compiled by Bloomberg. An
average of 4.11 percent of loans were at least 30 days late in February and
March, according to reports filed by American Express Co., Bank of America
Corp., Capital One Financial Corp., JPMorgan Chase & Co., Citigroup Inc. and
Discover Financial Services.

General Electric Co. will stop writing new consumer loans for recreational
vehicles in North America because financial returns are too low, the
Fairfield, Connecticut-based company announced May 5. GE is paring its
exposure to consumers in developed economies, though it will still service
its existing $3.6 billion loan portfolio mostly in the U.S. and Canada.

In response to criticism from Congress, the Fed released a proposal May 2 to
prevent ``unfair or deceptive'' credit-card lending. The rules would bar
rate increases on existing balances and prohibit so-called double-cycle
billing that often results in higher finance charges for customers who don't
pay off their balances each month.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSN4AbFYIoCc&refer

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