WASHINGTON - Consumers are on a credit card tear again with the friendly help of their local commercial banks, according to the most recent Federal Reserve data.
But while the consumer debt figures look unsettling, analysts and Fed officials say buyers are simply showing a renewed appetite to spend, especially on autos, without getting too far into hock.
Total consumer installment debt in September jumped at an annual rate of 10.5%, with auto credit up 10.2%. Revolving credit, which is used for major credit card purchases at department stores and gasoline service stations, shot up 13.5%.
In fact, consumers have been taking on more debt at a steadily rising pace since the beginning of the summer. June outstanding credit rose 3.4%, followed by gains in both July and August of 8%. Credit-card debt has been hottest of all, rising 16.4% in July, 17.1% in August, and 13.5% in September.
Commercial banks have been ready suppliers of much of the new credit, reflecting the industry's push to find profits with consumers after getting sideswiped by loans to commercial developers and small businesses that went bust in recent years.
In the period from January to September, while total consumer debt increased 3.0%, debt held by commercial banks rose 5.9%, and debt held by credit unions jumped 12.0%. Debt held by finance companies fell 2.9%, and other decreases were posted by savings institutions and retailers.
Auto credit increased $15.7 billion, or roughly two-thirds of all additional credit taken on by consumers, during the first nine months of the year. But while total auto credit expanded 6.1%, commercial banks put 10.1% more auto credit on their books. Revolving credit rose 4.6% overall but 5.4% at banks.
Tony Riley, director of research for Gary Shilling & Co. in Springfield, N.J., says the recent surge in consumer debt reflects a buying binge that cannot be sustained because income growth is much more modest. Consumers are simply drawing down on their savings, he says, and "it's tough to see how strong growth in consumer spending can continue."
But Fed officials point out that by other measures, consumers do not appear to be piling on new debt recklessly. Debt service payments, which include principal and interest, have remained at a relatively stable 16.2% share of disposable personal income over the last year. "I'm not overly concerned," said one official.
Moreover, Fed officials are aware that credit card companies are aggressively marketing the use of plastic in retail outlets such as gasoline stations and grocery stores that used to rely on cash payments from customers. In some cases, the cards offer users cash rebates or points toward major purchases such as airline fares and autos.
All of this adds up to anecdotal evidence that consumers are piling more routine purchases onto their credit cards, which can show up as increases in outstanding debt reported each mouth by the banks to the Fed even if the debt is paid off promptly.
Dana Johnson, head of market analysis for first National Bank of Chicago, says banks have been eager to step up their consumer lending business, where the risks of loss appear small after the bath banks took from large commercial customers. "I think they're real anxious to be lending to the consumer, where you have smaller units and increased predictability of payback performance," he says.
Lyle Gramley, consulting economist to the Mortgage Bankers Association, says that the consumer debt load is still down considerably from late 1989, when the ratio of debt payments to disposable income hit a peak of 18.3%. The reduction to the current ratio of 16.2% has put about $100 billion in consumer pockets for spending, he estimates.
Gramley says consumers are benefiting from the Fed's reduction in short-term interest rates, which has trimmed the cost of credit card and other variable-rate debt. Consumers are also picking up cash from home mortgage refinancings and from moves to replace long-term credit-card debt with home equity loans at lower interest rates.
