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May consumer borrowing jumps 6.4 percent
2007-07-09
Consumer borrowing posted a hefty increase in May, reflecting the biggest jump in credit card debt in six months. The Federal Reserve reported Monday that consumer credit rose at an annual rate of 6.4 percent in May, far above the small 1.1 percent gain of April. The increase was propelled by a surge in the category that includes credit cards, which rose at a rate of 9.8 percent in May after having a tiny increase of 0.2 percent in April. The jump in credit card debt was the largest since a 14.5 percent rate of increase in November. The category of consumer credit that includes auto loans was also up in May, rising at a 4.4 percent rate after a 1.7 percent gain in April. The size of the increase was nearly double what economists had been forecasting, although they were looking for a rebound from the sluggish performance in May, when the 1.1 percent rise in overall credit was the smallest gain since a 0.1 percent rise in October. David Wyss, chief economist at Standard & Poor's in New York, said some of the surge in credit card debt reflects the fact that it is getting harder to get home equity loans with banks tightening up on standards and home values not soaring as they did during the housing boom. "We think that people who had been refinancing their credit card debt into home equity loans are finding that harder to do now," Wyss said. That would explain part of the big rise in credit card borrowing in May, he said. Wyss said another factor was a strong gain in retail sales in May, which shot up by 1.4 percent, the largest jump in more than a year, as consumers brushed off rising gasoline prices to storm the malls. "April consumer credit surprised us by being weaker than expected, and the May performance was stronger than expected. Probably, the best thing to do is average the two months," Wyss said. The overall economy, weighed down by a slump in housing, grew at a lackluster rate of 0.7 percent in the January-to-March quarter, the weakest showing in more than four years. But economists believe strength in employment and consumer spending will help provide a stronger performance in the April-June quarter, with many looking for the gross domestic product to expand at a rate of 3.5 percent or even better. The report on consumer borrowing will provide support for the view that consumer spending has held up, despite the weakness in home sales and soaring gasoline prices during the spring. For May, consumers increased their borrowing by $12.9 billion to a record level of $2.44 trillion. Economists had been forecasting that consumer borrowing would rise by a much smaller $6.5 billion. ___ On the Net: Consumer credit: http://www.federalreserve.gov
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