Consumer Credit Declines as Borrowing for Autos Slows

More evidence that consumers are having a difficult time obtaining credit was released by the Federal Reserve on Friday. For the second time in three months, consumer credit declined compared to the previous year, and interest rates for car loans rose for the third straight month.

U.S. consumer credit fell by $3.5 billion in October to a total of $2.578 trillion, according to central bank data. As a percentage, consumer credit fell at an annual rate of 1.6%, compared to the 3.1% advance seen in September and the 3.0% decline in August.

The change was far below the consensus expectation for an increase of $2.0 billion. Revisions show that consumer credit in September rose less than expected at $6.7 billion, compared to an initial estimate of $6.9 billion.

Credit card and other revolving debt fell by 0.2% annually, or $0.2 billion. Non-revolving borrowing - such as auto, personal, or student loans - fell by 2.5%, or $3.4 billion.

Confirming that loan standards have gone up in October, as reported in the anecdotal Beige Book report released by the Federal Reserve on Wednesday, the average interest rate for a car loan moved up to 6.41%, up from 6.24%.

By Patrick McGee and edited by Stephen Huebl
©CEP News Ltd. 2008