Continued Surge in Non-Mortgage Borrowing

No pessimism was apparent in consumer spending and borrowing decisions through February, 2000. According to the Federal Reserve Board, consumer installment credit outstanding grew at an annualized pace of 15.7% in January and 10.2% in February, the strongest back-to-back monthly gains since the mid-1990s. The Fed defines consumer installment credit to include automobile loans, credit card and other revolving debt and a variety of secured and unsecured personal loans, but it excludes auto lease and all loans secured by real estate(first and second mortgages and home equity lines of credit). Total consumer installment credit at the end of February was $1,423 trillion.

Revolving credit has moved ahead of non-revolving credit as the growth leader, after lagging behind during the third and fourth quarters of 1999. On a seasonally adjusted basis, revolving credit soared at an 18.5% annualized pace during January, slowing to an 11.4% growth rate in February. Non-revolving credit was also strong in January, growing at a 13.6% annual pace, but slowing to a 9.2% pace in February. Revolving credit accounted for $611 billion of total installment credit in February, or 43%.

The growth in credit is not that surprising given the continued remarkable growth in consumer spending. Real consumer spending in the first quarter probably grew by more than 5% based on the statistics available for January and February. On the heels of record-setting sales in 1999 (17 million cars and light trucks), auto sales continued to set a torrid pace through the first quarter. When final statistics are tallied, sales in the first quarter may have set another quarterly record, eclipsing the previous seasonally adjusted annualized record rate of 18.2 million units set in the third quarter of last year.