Fed: Consumers trim borrowing by $3.2B in May
WASHINGTON — Consumers trimmed borrowing in May for the fourth straight month as the recession took another bite out of investments and drove unemployment higher.
Many economists predict that consumers will stay cautious in the months ahead, boding for a lethargic recovery if the downturn ends later this year as many expect.
The Federal Reserve said Wednesday that consumer credit fell at an annual rate of 1.5 percent, or by $3.2 billion, from April. Economists expected a deeper cut of $9.5 billion.
But the new figures still mark the latest move by consumers to curb borrowing, pay down debt and strengthen household budgets. Americans have been spending less and saving more to cope with the recession, which started in December 2007 and is the longest since World War II.
The savings rate jumped to 6.9 percent in May, the highest since December 1993. The amount of money saved — $768.8 billion — was the most on records that started in January 1959, the government recently reported.
“Once consumers feel a little safer about the economy and their own jobs, they’re going to spend some of that savings,” predicted John Canally, economist at LPL Financial, adding that he doesn’t see recent changes in consumer behavior “torpedoing the recovery.”
Revised data released Wednesday showed consumers ratcheted back borrowing at a 7.8 percent pace in April, or by $16.5 billion. That was a bigger cut than first reported and the largest — in dollar terms — on records dating to 1943. The $15.6 billion drop in March was slightly less than previously reported, but the second largest tally ever.
The four straight monthly declines mark the longest stretch of pullbacks since consumer borrowing fell for seven consecutive months from June through December 1991.
The Fed’s measure of consumer borrowing does not include debt secured by real estate, such as mortgages or home equity loans.
In May, consumers’ appetite for revolving credit, primarily credit cards, declined at a rate of 3.7 percent, or by $2.9 billion. That followed a a 11.1 percent annualized drop in April, or $8.7 billion.
Demand for non-revolving credit used to finance cars, vacations, education and other things dipped at a 0.3 percent pace in May, or by $367 million. That came after consumers sliced such borrowing at a 5.9 percent pace in April, or $7.8 billion.
Americans’ net worth shrunk by $1.3 trillion in the first three months of this year due to declining stock and home values. Many are having trouble paying their bills on time. Consumer loan delinquencies hit a record-high in the first quarter due mainly to rising unemployment, the American Bankers Association said Tuesday.
The nation’s unemployment rate climbed to a 26-year high of 9.5 percent in June. Employers slashed jobs, workers’ hours fell to a record low and weekly wages declined to their lowest point in nearly a year.
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