Borrowing Accelerated at the End of 1999

We reported last month that consumers appear to be building up their non-mortgage  balances again, following a period in 1998-99 when non-mortgage debt per borrower actually fell. The Federal Reserve Board’s March report on aggregate consumer installment credit (G.19 statistical release) confirmed this observation. According to the  Fed, consumer installment credit outstanding grew during January, 2000 at a seasonally adjusted annual rate of 14.6 percent, the highest rate since November, 1995. 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 leases 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  January, 2000 was $1.41 trillion. Revolving credit accounted for $603 billion of the total, or 42.8%. While these aggregate figures are not directly comparable to the debt-per-borrower data we previously reported, they do signal an acceleration, which may raise average household debt levels.

The surge in consumer borrowing at the end of 1999 and early this year exceeded most analysts’ expectations, but was certainly consistent with the remarkable strength of consumer spending during the fourth quarter and the holiday shopping season.  During January, revolving credit grew at an annualized pace of 15.1% while non-revolving credit grew by 14.2%.  The accompanying chart reveals that total installment credit growth accelerated during 1999 from the more moderate pace of the previous two years. Unlike the situation in the mid-1990s when credit card debt exploded, non-revolving credit was the stronger growth driver over the past year.  However, the January data indicate that consumers are now rebuilding their revolving balances as well. 

Consumer spending shows every indication of continued strength, at least through mid-year. With mortgage rates on the rise and the consequent shrinkage in refinancing activity, it is likely that more consumers will continue utilizing traditional installment loans to finance their spending. Continued growth of consumer installment credit at an annual pace of 8-10% seems likely.