Consumers boosted their borrowing by $1.18 billion in April, the largest monthly increase in outstanding consumer installment credit since last September's $2.98 billion rise, the Federal Reserve reported yesterday. It followed a rise of $990 million in March.
Although other figures show that the economy was still in recession in April, yesterday's report suggests that consumers may have begun to shed some of the caution that has reduced buying. "There was not a great deal of change" in net consumer borrowing in the month, but the report "perhaps shows a little more buoyancy," Commerce Department Chief Economist Robert Ortner said yesterday.
Most analysts expect the economy to pick up after individuals receive a 10 percent tax cut on July 1, although several forecasters fear that the recovery may be weak if interest rates stay high. Ortner suggested that some people already may be spending and borrowing more in anticipation of the tax cut, which has been "very well advertised."
The strongest category in April was revolving credit, which includes department store and credit card accounts. This was up $499 million, after a $307 million rise in March. Outstanding credit for auto loans was up by $233 million, after contracting in each of the preceding three months.
Meanwhile, the chairman of the Financial Analysts Federation predicted that continuing high interest rates could push "another 100" of the nation's largest 1,000 firms into bankruptcy and urged Congress and the administration to work to cut the federal deficit.
"If interest rates fail to come down soon, an increasing number of companies, large and small, will be pushed into bankruptcy this summer due to rising costs and inability to get credit," said the analyst, Frank A. Cappiello Jr., chairman of the 15,000-member association and president of Dowbeaters Inc., a Baltimore-based investment advisory firm.
At a New York City news conference, Cappiello used the 1980 election phrasing of Vice President Bush to criticize the administration's plans to sharply increase defense spending. "Certainly, increasing defense spending substantially in a climate of high interest rates during a deep recession is truly voodoo economics," Cappiello said.
But he also said that he hopes next month's federal tax cut and increases in Social Security payments will help to end the recession by causing sharp jumps in retail sales.
Cappiello and Robert S. Salomon, managing director of the Salomon Brothers Inc. Stock Research Department, warned of rising levels of business and consumer debt during times that Salomon said were characterized by the highest real interest rate levels since the end of World War II.