Increase in Consumer Debt is Far Less Than Expected | AccountingWEB

Increase in Consumer Debt is Far Less Than Expected

While consumer spending has been a major driver of the U.S. economic recovery, the increase in borrowing in April was far lower than Wall Street analysts had expected.

Borrowing for auto loans and other types of nonrevolving debt increased, but at the slowest rate since last November, the Federal Reserve reported on Tuesday. Nonrevolving credit rose $1.7 billion in April versus a $7.4 billion rise in March, Reuters reported.

Consumer credit rose just $1.26 billion in April, rather than the $7 billion increase that was predicted by many analysts. In annual terms, consumer credit rose at a 0.7 percent rate in April, compared with a 3.9 percent annual growth rate in March, the Fed said.

Revolving credit loans, which includes credit-card debt, fell for a second consecutive month, dropping at a rate of 0.6 percent in April after a 0.9 percent decline the month before. They were the first back-to-back declines since June and July 2003.

Some analysts suggest that the low level of borrowing in April may mean that consumers used their tax refunds to make payments on existing debt. "It was a surprisingly weak number," Richard Yamarone, chief economist at Argus Research in New York, told the Associated Press. "The consumer may be adopting a more prudent role and paying down some old loans."

However, he noted that the low rate of borrowing is probably only temporary, as consumer spending had risen for 52 consecutive quarters since 1992.

The Fed says that total consumer debt is now a record $2.13 trillion, a figure that does not include an estimated $8 trillion owed on home mortgages and home equity loans.

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