Consumer Credit in U.S. Fell by Most in Three Months

Consumer Credit in U.S. Fell by Most in Three Months (Update3)

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By Vincent Del Giudice

April 7 (Bloomberg) -- Consumer credit in the U.S. declinedin February more than anticipated, indicating Americans arereluctant to take on more debt without further improvement inthe labor market.

Borrowing fell $11.5 billion, the most in three months,after a revised $10.6 billion January gain that was twice asmuch as initially estimated, the Federal Reserve said today inWashington. The decline in the February measure of credit carddebt and non-revolving loans was worse than the lowest estimatein a Bloomberg News survey of 34 economists.

The drop was the 12th in 13 months and shows consumerpurchases, which account for about 70 percent of the economy,will be limited until households become more optimistic aboutthe recovery. Confidence to finance spending may be restored ifemployment keeps rising after a March payroll gain that was thebiggest in three years.

“I don’t think we’re going to have the credit-fueledspending we had in the past,” said Gary Thayer, chief macrostrategist at Wells Fargo Advisors LLC in St. Louis. “A lot ofconsumers are deleveraging. They see excess borrowing asthreatening.”

Stocks declined on concern the economic rebound may slow,with the Standard & Poor’s 500 Index falling from an 18-monthhigh. The S&P 500 decreased 0.6 percent to 1,182.45 at 4:13 p.m.in New York. Visa, the world’s biggest payments network, slid1.8 percent to $90.71 and credit-card issuer American ExpressCo. dropped 1.7 percent to $42.37.

Economists’ Forecasts

Economists expected a $700 million decline in Februaryconsumer credit, according to the median estimate of economistsin a Bloomberg survey. Projections ranged from a decrease of $10billion to an increase of $5 billion.

Borrowing in January was revised from a $5 billion gain,the first in a year and reflecting a jump in federal non-revolving loans, such as student loans. Such borrowing increasedan unadjusted $13.9 billion in January, previously reported as a$10.3 billion gain.

Revolving debt, such as credit cards, declined by $9.4billion in February, the most in three months, according to theFed’s statistics. Non-revolving debt, including loans for carsand mobile homes, dropped by $2.1 billion. The Fed’s reportdoesn’t cover borrowing secured by real estate.

Auto sales in the U.S. slowed in February to a seasonallyadjusted annual rate of 10.36 million from 10.8 million a monthearlier, according to industry statistics. Snow in the easternU.S. paralyzed car dealerships and other businesses in citiesincluding Washington and Philadelphia.

March Auto Sales

The pace of car sales jumped to 11.77 million in March,after Toyota Motor Corp. offered incentives to win back buyersfollowing record vehicle recalls.

Consumer spending rose in February for a fifth straightmonth, Commerce Department figures showed March 29. Purchasesincreased 0.3 percent, while incomes were unchanged, reflectingslow job creation.

Employment rose 162,000 last month after falling 14,000 inFebruary, the Labor Department said on April 2. The jobless rateheld at 9.7 percent.

Spending is forecast to rise an average 2.25 percent in thefirst six months of the year after increasing at a 1.6 percentannual rate in the fourth quarter, according to the medianestimate in a Bloomberg survey of economists from March 1 toMarch 10.

Late Payments

As the economy and labor market improves, fewer Americansare falling behind in their credit card payments. Five of thesix biggest U.S. credit-card lenders, led by Bank of AmericaCorp. and JPMorgan Chase & Co., said late payments fell or heldsteady in February as the industry recovered from record losses.

The share of payments at least 30 days overdue, anindicator of future write-offs, dropped to 7.23 percent fromJanuary’s 7.35 percent, Charlotte, North Carolina-based Bank ofAmerica said. New York-based JPMorgan said late payments droppedto 4.67 percent from 4.75 percent.

In 2009, credit-card write-offs increased 59 percent to $89billion from $56 billion in the previous year, according to R.K.Hammer Investment Bankers, in Thousand Oaks, California. Write-offs and delinquencies typically track the unemployment rate.The jobless rate has declined since reaching 10.1 percent inOctober, the highest since 1983.

To contact the reporter on this story:Vincent Del Giudice in Washington [e-mail]

Last Updated: April 7, 2010 16:17 EDT