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Consumer Debt Posts Record Surge

Economy: November shoppers found interest-free car loans, discounting hard to resist, analysts say.

January 09, 2002|Bloomberg News

WASHINGTON — U.S. consumer borrowing rose more in November than at any time in almost six decades as shoppers took advantage of interest-free loans to buy new cars, Federal Reserve figures showed.

Consumer debt increased $19.8 billion during the month, the Fed reported. The rise was four times analysts' expectations and followed an $11.2-billion October increase that was more than the $7.0 billion initially reported last month.

Cheaper financing offered by companies including General Motors Corp. and Toyota Motor Corp. helped underpin consumer spending, which accounts for two-thirds of an economy that's been in recession since March of last year. Nonrevolving credit, which includes auto loans, surged in the month.

"It wasn't just autos, revolving credit accelerated" as well, said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York. "In the absence of income, people reached for plastic. People may be not paying off their balances and letting them run up. It smacks more of financial distress than a stronger economy."

Credit card and other revolving debt increased $5.4 billion in November, the biggest increase since a $6.8-billion rise in April. Revolving credit declined $3.5 billion in October.

Non-revolving loans increased $14.4 billion in November after rising $14.7 billion a month earlier. The October increase was the largest since a $15.7-billion jump in January 1989.

Analysts expected all consumer credit to rise by $4.7 billion during November. The increase was the largest since the Fed started keeping records in January 1943. Economists use the numbers to help gauge changes in spending.

Even with a December unemployment rate at a 6 1/2-year high of 5.8%, incentives enticed buyers. Auto sales rose 7.5% in November as consumers bought vehicles with zero-interest financing offered by General Motors, Toyota and other car makers. The average amount financed for a new car was $24,934 in November, up from $24,443 in October, the Fed's figures showed.

November's seasonally adjusted annual sales rate was 18 million vehicles. Although that was slower than the 21.3 million rate in October, it allowed for the second-best sales year.

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