U.S. consumers, feeling the strain of a housing slump and related credit crunch, have reined in their borrowing, which could further damp spending.
The Federal Reserve said consumer borrowing rose at a seasonally adjusted 2.4% annual rate in February to $2.54 trillion, half the 4.9% pace recorded in January. Credit-card borrowing rose at a 5.9% pace in February, but demand for auto loans and other kinds of nonrevolving debt slowed to a 0.4% rate.
The slowdown isn't a surprise. As the financial crisis has deepened, credit-card companies and lenders have tightened their standards and have been more cautious about lending.
Large credit-card issuers such as Citigroup Inc. are requiring higher credit scores for people wanting cards. Many card issuers are raising late fees and other charges. GMAC LLC has said it will close the majority of its auto-financing offices in the U.S. and Canada this year and cut nearly 1,000 jobs. 'It seems that when lenders are presented with a new lending proposition, they are more inclined to refuse,' said Ian Shepherdson, chief U.S. economist at High Frequency Economics, of Valhalla, N.Y., in a note to clients.
The slower demand for credit also partly reflects consumers' struggles to meet current loan obligations. The American Bankers Association said last week that consumer-credit delinquencies in the last three months of 2007 were at their highest levels in nearly 16 years, and it predicted there would be no relief this year amid 'stubbornly high' food and gasoline prices and 'anemic' income growth.
Part of the reason why credit-card borrowing continues to rise -- albeit at a slower pace -- is that homeowners' ability to take out home-equity lines of credit has shrunk, said Steven Wood of Insight Economics.
Mr. Wood and others caution that consumers' reduced access to credit, combined with slowing income growth, will further dent consumer spending, the main driver of U.S. economic activity. The U.S. economy grew just 0.6% in the last three months of 2007, and many analysts expect the economy to contract during the first half of 2008.
The grim prognosis shows the extent to which the housing downturn and credit crunch have damaged the U.S. economy.
'The silver lining, if there is one, is that the weakness...will help depress crude-oil prices' and push down inflation, Mr. Shepherdson said in his note.
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