Loans and Income Rise; Jobless Claims Fall

By BLOOMBERG NEWS

July 9, 2004

Consumer borrowing rose for a sixth consecutive month in May, as personal incomes increased and shoppers bought new cars at the fastest pace since December, a Federal Reserve report indicated yesterday.

Also yesterday, the Labor Department said the number of workers filing initial claims for jobless benefits fell last week to 310,000, the lowest level since October 2000. But it also said that the total might be too low because fewer auto factories than predicted shut down to retool.

The four-week moving average of claims, which tends to smooth out weekly fluctuations, fell to 336,000, the lowest since May 22. Economists said they expected continued job growth.

According to the Fed's report, nonmortgage debt rose in May by $8.2 billion, or 4.9 percent at an annual pace. In April, borrowing rose by a revised $5.3 billion, or 3.1 percent annually. Consumer credit in May had been forecast in a Bloomberg News survey of economists to increase $7.5 billion.

Total consumer debt was $2.03 trillion in May, the Fed reported.

"The trend in borrowing has remained stronger than expected," said Christopher Low, chief economist at FTN Financial in New York. Borrowing from banks and credit cards increased in part because consumers knew that home-equity loan rates would be rising, he said.

Consumer spending increased 1 percent in May, the most since October 2001, the Commerce Department said last month. But yesterday, some retailers including Wal-Mart reported disappointing sales for June, raising doubts about whether the pace of spending would continue.

For May, nonrevolving debt - which includes borrowing for purposes like car purchases and college costs - increased $6.6 billion after rising $8.4 billion in April. Revolving credit, which includes credit cards, rose $1.6 billion in May after falling $3.1 billion in April.

Light-vehicle sales in the United States increased to an annual pace of 17.8 million in May from 16.4 million in April.

Credit card debt written off as uncollectible rose in May to an annualized 7 percent of receivables backed by securities from 6.8 percent in April, according to Standard & Poor's.

Balances on loans with payments 30 days or more past due fell to 4.4 percent of receivables from 4.5 percent.

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