Consumer debt soared in March with outstanding installment credit increasing by $3.1 billion after seasonal adjustment, the largest rise since September 1979, the Federal Reserve Board said yesterday.
The rise in borrowing reflected bouyant auto sales and the rapid growth in the economy in the quarter, Nancy Teeters, one of the Fed Governors, said yesterday. The latest debt figures "go along quite well with [these] two things that we knew previously," she said.
New credit extended for auto loans jumped from $7.7 billion to $9.4 billion before seasonal adjustment, and from $8.3 billion to $8.7 billion after seasonal adjustment, the Fed report showed. There was a $1.68 billion rise in outstanding auto debt.
Auto rebates pushed up car sales sharply in February and March, and thus increased auto loans. However the rebates probably meant that sales were "borrowed" from the current quarter, as people bought cars earlier than otherwise. Thus the April figures are likely to show a slowdown in auto debt.
Acting chief economist at the Commerce Department William Cox commented that "it's a little bit hard to square the sizeable credit increase with the decreasing growth in consumer spending in February and March." He added that auto sales were probably the chief engine of credit growth.
Other kinds of credit also expanded in March , the Fed report showed. Outstanding installment debt for revolving credit -- including credit cards of banks, oil companies and retail stores -- rose by $590 million; for finance companies and credit union loans about $750 million; and for mobile home loans about $90 million.
Sandra Shaber, senior economist with Chase Econometrics, said the credit report "looks encouraging" as it suggests the economy will not fall into a steep recession. But recently rising interest rates could slow down the credit demand shortly, she added.