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Consumers Reduce Borrowing Since 2003

July 8, 2005

WASHINGTON (AP) _ Consumers, showing some caution about piling up new debt, reduced their borrowing in May for the first time in 18 months, the Federal Reserve reported Friday.

They reduced their borrowing by $3 billion in May from the previous month, a drop of 1.7 percent on an annualized basis. That marked the first decline since November 2003.

The decline in new debt in May reflected a pullback in demand for nonrevolving credit, which includes loans for cars, vacation and education. That type of borrowing fell by $3.7 billion in May from the previous month, or at a 3.4 percent annual rate.

``Consumers may be playing a more prudent role in their finances and paying off accumulated debt,″ said Richard Yamarone, economist at Argus Research Corp., of the drop in overall borrowing in May.

``The big driver was the poor automotive sales activity that we had in May and the weak borrowing for automotive loans.″

In April, demand for nonrevolving credit rose at a 1.5 percent pace, or by $1.7 billion.

The Fed’s report does not include home mortgages or popular home-equity loans.

Demand for revolving credit _ mostly credit cards _ rose in May, after falling in both March and April.

Revolving credit increased at a 1.1 percent annual rate in May, or by $724.9 million.

Yamarone also believed that high energy prices along with a gradually improving _ as opposed to gangbusters _ job market may be making people think twice about adding to their debt burdens.

In April, overall consumer borrowing rose at a pace of just 0.7 percent, or by $1.2 billion, the smallest increase in five months.


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