Fewer people taking out loans
By ASSOCIATED PRESS
Published December 8, 2006
WASHINGTON - Consumer borrowing fell in October by the largest amount in 14 years, reflecting a big drop in auto loans.
The Federal Reserve reported Thursday that borrowing declined at an annual rate of 0.6 percent in October following a revised 2 percent increase in September. It was the biggest drop since a 1 percent plunge in October 1992.
The weakness last month came from a huge falloff in demand for auto loans and other types of nonrevolving credit, which declined at a rate of 3.3 percent in October, following a 0.4 percent gain in September.
The drop in the category that includes auto loans was the largest one-month decline in this area since a 3.6 percent fall in May 1993.
The 0.6 percent overall drop was the first dip in consumer borrowing since a 0.2 percent decrease back in March.
Analysts cautioned against reading too much into the one-month change, noting that the consumer credit figures can be subject to major revisions. The 2 percent rate of increase in borrowing in September had originally been reported as a 0.6 percent decline.
However, economists said they are forecasting a slowdown in the rapid pace of borrowing of the past two years as consumers start to feel less wealthy now that housing prices are no longer surging to record levels.
"The wealth effect from rapidly rising home prices is gone now and that should mean that consumers will be less willing to take on debt," said Bill Hampel, chief economist for the Credit Union National Association, an industry trade group.
The overall economy has slowed significantly this year as consumers have trimmed the growth in their spending and the housing market has been battered by slowing sales and weaker home prices.
The Fed report showed the category that includes credit cards saw an increase in borrowing of 4.1 percent at an annual rate in October, down from a 4.9 percent rise in September.
The overall drop in borrowing trimmed $1.24-billion from total consumer credit outstanding in October, pushing it down to $2.38-trillion.
Another stock decline
On Wall Street, stocks declined for a second straight session Thursday as investors grew nervous ahead of the government's November jobs creation report and its implications for the health of the overall economy.
Wall Street hopes the job market will hold up well enough to safeguard consumer spending, though investors also are concerned that high employment levels will make it more expensive for businesses to hire and retain workers. As the Federal Reserve has said it remains vigilant about inflation, a rise in wages could make it harder for the central bank to justify a cut in short-term interest rates.
The Dow Jones industrial average fell 30.84, or 0.25 percent, to 12,278.41.
Broader stock indicators also fell. The Standard & Poor's 500 index remained near a six-year high but was down 5.61, or 0.40 percent, to 1,407.29, and the Nasdaq composite index fell 18.17, or 0.74 percent, to 2,427.69.
Weakness in energy, consumer discretionary and technology stocks added to overall selling pressure.
[Last modified December 7, 2006, 23:36:20]
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