Consumer credit rises by $6b

Fed says hike in July was led by auto sales

By Bloomberg News, 9/9/2003

WASHINGTON -- US consumer debt expanded in July as Americans took out loans to buy more cars, Federal Reserve statistics showed.

Borrowing through credit cards, auto loans and other nonmortgage personal debt increased 4.1 percent, or $6 billion, to $1.77 trillion, the Fed said. In June, consumer credit rose by a revised $151.3 million, or 0.1 percent.

Consumer spending climbed in July even as the economy lost 49,000 jobs. Household purchases, which account for 70 percent of the economy, increased at the fastest pace in four months, led by a jump in sales of autos and other durable goods, the Commerce Department reported earlier.

"Consumers are still willing to buy cars and finance them on credit," said Steven Wood, principal economist at Insight Economics in Walnut Creek, Calif.

Economists expected a $5 billion rise in debt in July, based on the median of 43 forecasts in a Bloomberg News survey. Estimates ranged from a decrease of $1 billion to an increase of $8.2 billion. The Fed revised its initial estimate for June of a $400 million decline.

Revolving credit, which includes credit cards, rose 0.5 percent, or $327.1 million, in July to $726.9 billion, after falling $1.27 billion in June.

American Express Co., the fourth-largest US credit card issuer, said July 28 that its quarterly profit rose 12 percent to a record as customers charged more on their cards and as loan losses declined.

Nonrevolving loans for vehicles and mobile homes, which make up almost two-thirds of household non-mortgage debt, jumped 6.6 percent, or $5.7 billion in July, to $1.047 trillion, after rising $1.4 billion in June.

Auto dealers reported that sales of new cars and light trucks rose 5.5 percent in July to a 17.3 million-vehicle annual rate from June's 16.4 million.

The central bank's monthly report doesn't track consumer loans secured by real estate, such as mortgages and home equity lines of credit. In the first quarter, mortgage and home equity debt totaled $6.219 trillion, up 2.8 percent from the final three months of 2002, the Fed reported earlier.

After reaching a record in late May, applications to refinance mortgages plunged 32 percent in July from June as rates rose, according to the Mortgage Bankers Association of America. Cash from home equity tapped in loan refinancing has helped fuel the economy's expansion.

By the end of July, the average 30-year fixed mortgage rate rose to 5.94 percent after reaching a record low in mid-June of 5.21 percent. The rebound in mortgage rates reflected a rise in yields on long-term bonds, such as the Treasury's 10-year note, which jumped almost 1.5 percentage points in July from a June low. Consumer spending in July gained 0.8 percent $7.7 trillion at an annual rate, following a 0.6 percent increase in June. Disposable income, or the money left after taxes, jumped 1.5 percent in July.