Consumers take on far more debt


WASHINGTON -- Increasingly confident consumers took on an unexpectedly large $8.1 billion more of installment debt in October than they paid off, a tally by the Federal Reserve showed yesterday.

Even though previously published figures have shown hefty gains in sales of automotive and other retail goods during October, analysts said yesterday that they were impressed by the degree to which consumers were willing to take on fresh debt.

"It's a barometer of consumer confidence," said Elliott Platt, an economist at Donaldson, Lufkin & Jenrette, calling the Fed's report a "very good precursor" for the holiday season. "The consumer's willing to borrow again -- and borrow confidently."

The October increase was believed to be the biggest gain since January 1988, except for a big jump a year later that reflected technical changes in compilation. A main reason for consumers' willingness to take on new debt, Mr. Platt said, is that many households have taken advantage of the lowest long-term interest rates in two decades to refinance mortgages, sometimes more than once, sharply lowering their monthly payments.

A second report yesterday by the Mortgage Bankers Association of America showed that mortgage delinquencies fell to a 19-year low during the third quarter.

The Fed's report on installment debt was marked by a $3.9 billion rise in outstanding automotive credit and included a substantial $3.2 billion advance for revolving credit, a widely watched component that includes credit cards.

The rest of the gain, $1 billion, was in the "other" category, whichcovers such things as loans for mobile homes, tuition, boats and travel.

"The ability to take on debt is still very favorable," said Susan M. Sterne, an observer of consumer behavior and president of Economic Analysis Associates in Stowe, Vt. "It's a big positive for the fourth quarter."

Ms. Sterne cautioned, however, that consumers might have reached the limits of their spending and borrowing and that some other source of strength would probably be needed if the economy is to keep moving smartly ahead in 1994, when upper-income taxpayers are faced with paying 1993 tax increases that took effect retroactively.

The $8.1 billion rise in October debt outstanding was well above the $5 billion that had been generally expected and also exceeded September's advance, which the Fed revised downward, to $6.1 billion.

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