Consumer borrowing unexpectedly surges in March

WASHINGTON — Consumer borrowing rose in March at the fastest pace in four months, more than double the increase of the previous month, in what was seen as a sign of rising economic stress.

The Federal Reserve reported Wednesday that consumers increased their borrowing at an annual rate of 7.2 percent, compared with a 3.1 percent rate of increase in February.

The gain was much larger than economists had been expecting and reflected strong borrowing on credit cards and also in the category that includes auto loans. The increase in consumer debt totaled $15.3 billion at an annual rate in March, much bigger than the $6 billion increase that economists had been expecting.

Economists said consumers were being forced to make greater use of their credit cards during hard economic times when they are being battered by job losses, soaring gasoline prices and higher food costs.

"This represents distressed borrowing. Consumers need cash and they have turned back to their credit cards to fill the void left by lost jobs and weaker incomes," said Mark Zandi, chief economist at Moody's Economy.com.

Borrowing on credit cards was up at an annual rate of 7.9 percent, compared to a 5 percent gain in February, while borrowing in the category that includes auto loans jumped by 6.8 percent, compared to a 2 percent increase in February.

The overall growth in debt of 7.2 percent at an annual rate was the biggest gain since an increase of 8.25 percent last November.

Consumers have been moving to put more of their purchases on their credit cards as banks have tightened lending standards for home equity loans in response to the deepening credit crisis.

The Fed's measure of consumer borrowing, which does not include any debt secured by real estate such as mortgages or home equity loans, stood at a record $2.558 trillion in March.

Comments

[FreedomCorpse]

Is it a wonder why Visa had an IPO? They privatized the profits for decades, now that the gig is up, they have dumped the mess on 'investors' with a few making money on the initial run up on the stock price then bailing and running back to commodities.

[ceasenake]

People are running up thier credit cards because they know they will be getting $600 or $1200 this month to pay them off.

[flatus]

There are alot of people out there treading the debt waters, hoping to stay afloat long enough to form a group large enough to have their drowning noticed.

[KillTheMessenger]

Unexpectedly? Really? Why? We already know that Americans are very poor at controlling their spending and that many people, rather than to make near term adjustments to their habits, will go on a death spiral of credit card debt. I have an otherwise quite nice friend who did just that. She and her daughter were buying a car and going on vacation by maxing out multiple credit cards while having only minimal income. A couple of years later they had to be rescued by their better off family because they could not make the payments any more.

One might want to compare that to my own upbringing. My parents were in debt most of their lives. But it was bank debt with a fixed (and relatively low) interest rate and my mother was controlling the spending of every dollar my Dad earned. We were living lean and any debt we ever had was paid back on a pre-determined schedule and on time. I still remember Mom filling sheets and sheet of paper with calculations on how much she could save on grocery shopping.

This is not a crisis. This is a self-inflicted financial gunshot-wound brought on by poor education.

[FreedomCorpse]

10 years of stagnant or declining wages doesn't help things silly.

[Nova16]

Just as private debt is increasing, the debt of the US government is growing at a pace unseen in our history, Bush and his enablers in and out of congress have added almost 7 trillion in 7 years, when it took 232 years of our history to accumulate 3 trillion. Our country is in deep peril economically with the exhorbitant price of energy, endless war robbing our treasury, heavy borrowing from abroad, galactic trade imbalances, falling dollar, loss of manufacturing base, credit market and mortgage industry tanking,outsourcing, layoffs, failing infrastructure, rising food prices, stagnant wages, social security and medicare increases looming, current accounts deficits in the budget and growing. Can anyone put a positive spin on this growing crisis? Only Bush and his economic experts can.

[ranch111]

Ah credit cards. Slaves...

[Sundialsvc4]

Not a good sign.

For one thing: that debt will be noncollectable.

[Fulcanelli]

Perhaps the borrowing surge was from the hundreds of thousands of hard working Americans making small campign contributions to the Obama campaign. Hmmmmm...
I can think of worse things to go into a little more debt for.
Like it or not America, when credit speding screeches to a grinding halt, so will our economy.

[Fulcanelli]

See, the 'Surge' IS working!
My Bad...

[cheverlycats]

Funny!

[AxelDC]

The underlying problems with the US economy today can be summed up in one word: DEBT! Consumers are overextended, the government is running record deficits. This means that the US is teetering on financial ruin, and the consequences are already evident.

Overconsumption by the public and private have lead to record trade imbalances that have undermined the value of the dollar. The cheap dollar is making oil more and more expensive, slowing the economy. The Fed has reacted by furthering weakening the dollar and encouraging more debt by dramatically lowering the cost of credit. This is like prescribing Snickers bars to lethargic diabetics.

Until Americans learn fiscal responsibility at home and for our government, we are going to court financial disaster. Our grandparents learned the value of frugality the hard way: a massive depression in the 1930s that followed a mere decade of excess. The US is more in danger of the Stagflation of the 1970s than another Great Depression, but that illness was only cured by the worst recession in recent history.

[filo]

It looks like some people are pre-spending their stimulus checks.

[deke33]

Total ineptness and confusion is the trademark of this administration. I recall one of the problems this administration has laid the blame on was that Americans were not saving enough. Then the next mantra was that Americans were not spending enough. It seems that in this government "up is down and down is up". They know little of economics except that it is good to take from the poor and give to the rich.
Not once have I heard an administration official chastise oil companies for their exorbiant profits. To lay the blame for their excessive profits they constantly refer to the cost of a barrel of oil at the well. Now how that leads to excessive profits befuddles me. If their cost at the fount rises, one would expect the price at the pump to rise. Now let's talk about the rate of return, why would their profits increase exponentially? Why would their profits be flying through the roof other than pure greed, gouging, collaboration.
One hungers for the good old days when there was only three ways to increase profits: 1.Raise prices, 2. cut expenses, and 3. technological advantage.
It is ridiculous that a government willing to bail out Bear Stearns would now argue about assisting the very people that Bear Stearns, Countrywide and other unscrupulous companies lured into purchasing nefarious loans.

[dgscol]

People are paying for medications. If you look at US comsumption of pills - most of it is for pain. Lots of pain medication. This has started in 1995 or so, along with ADD and .... the upstart of outsourced production. Bush said he would place inspectors in foreign countries. What a laugh!

According to WTO rules, we were not told about product problems, and third world production methods are dangerous to your health. Banded pesticides, dioxin, pcb's, lead, medications with a taint, ... we never knew what was happening to us. Now that we do, no one is testing.

Who cares? Ralph Nader?

[cheverlycats]

Ralph Nader has been a crusader....unfortunately his ego now gets in the way.

[shockmagog]

The article states:

'Economists said consumers were being forced to make greater use of their credit cards during hard economic times when they are being battered by job losses, soaring gasoline prices and higher food costs.'

(and then):

'Consumers have been moving to put more of their purchases on their credit cards as banks have tightened lending standards for home equity loans in response to the deepening credit crisis.'

(which reminds me of this):

'MODERATOR: Do you think that you underestimated the (Iraq) insurgency"s strength?'

'CHENEY: I think so. I guess if I look back on it now, I don"t think anybody anticipated the level of violence that we have encountered.'
http://thinkprogress.org/2006/06/19/cheney-violence-iraq/

Just like the power elite chickenhawks who push other, and less fortunate people ahead of them into war, economists should be required to set aside some time to live their lives one day at a time, and one check ahead of destitution.

[KOisGod]

Tick tick tick tick

Bomb Bomb Bomb, Bomb Bomb Iran

Come ON, everyONE! Bomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb IranBomb Bomb Bomb, Bomb Bomb Iran

[Woggles]

My President told me to spend my tax stimulus check right away.
He told me to blow it all on Chinese plastic junk, and counterfeit
Chinese pharmaceuticals. He then told me that to reduce the deficit,
he's eliminating those stupid consumer safety agencies. He said they
interfere with American's freedom of choice, and that they're a plot by the
Democrats. If he says it, you know it's true.

God bless my president.
God bless America.

[wolfgangmo]

To my way of thinking if the secret service agents assigned to the Prez, VP and the rest of the administration were patriots they would choose to not take the bullet when it comes for those they guard.

[FreedomCorpse]

yeah...but they were selected by swearing a loyalty oath to the most unamerican president this country has seen since nixon.

[timothe]

The economists got this completely wrong. The additional consumer borrowing is in anticipation of the stimulus checks. This should help jumpstart the economy even sooner than the expected 2nd quarter jump.

[ImmanuelGoldstein]

Oh timothe please give us a break, that puny stimulus is 0.88% of our GDP. I t was purely political theater. It isn't going to jumpstart anything. For most people most of it's going to Saudi Arabia anyway....

[joebaggadonuts]

As I try to grock that, putting my self into the mind of the consumer maxing out my credit card, it might make sense, but only if I am planning on declaring bankruptcy and don't care how much debt I rack up before I pull the legal trigger, and do whatever comes next. Nice try though.

[WorkingClass]

Lose your job, live on your credit cards until you cant make the payments, go hungry. If your house is gone and you don't have a paycheck you are judgment proof. If you don't have an address the credit companies cant even find you. The poo is entering the ventilation system.

[fillou]

With food prices jumping 10% or 20% on some products like butter, cereals, milk, people pay more to get less. With oil rising more than 250% since 2001 (gas was 0.99 a gallon at that time ..)
With high inflation, of course people spend more, use more credit, no other choice, but they don't get more.

[drkazmd65]

I've (unfortunately) done that before - during Grad School. The credit cards were the safety net back then - and I am still paying that debt down. Don't think I will have to do it again - but lots of people might.

The problem is - the rates are artificially low now on the Credit Cards (as stupid as that sounds today) - but once the Fed starts raising the prime rates again to combat inflation,.. all the consumer debt is going to come due,... with even greater interest.

And,... once the defaults start happening on the credit card debt paper hanging out 'there',... it will be the mortgage crisis all over again but even worse.

[dadw5boys]

OR act like the wealthy and have your home in a trust at least 5 years before economic hard time.

After 5 years the home can not be touched and you can shed debt like diapers.

[xrepublican]

And if you thought the 'sub-prime' mess was bad.....

just wait unil 'CDO's' - Collateralized DEBT Obligation paper starts blowing up....... all that credit card debt is getting sliced, diced and resold just like those mortgages.......

Wall Street would package excrement and resell it as a fertilizer base derivative if it could get away with it............

[dadw5boys]

Unexpected was the huge increases in prices.

[nanotubz]

Anticipating those tax refunds and rebates, looks like more belly ups over the summer.

[tsloan]

of course people are borrowing....everyone's broke, except the super wealthy

[Nyk]

Not super wealthy, also not broke. People who were not smart with their money in the first place are broke.

[FreedomCorpse]

"People who were not smart with their money...." like the savers who are experiencing massive inflation due to the feds printing presses going full tilt to bail out bad business practices of big banks. All their savings are getting eaten up, if an investor is not getting better than 10-12 percent return on their investments they are losing money everyday.

[bluesnot]

As long as Bear Stearns is okay, there is nothing to worry about.