/www.bloomberg.com/ By Monee Fields-White
Washington, Oct. 7 (Bloomberg) -- U.S. consumer debt grew in August at the slowest rate in eight months, dragged down by the smallest increase in auto loans in more than three years, the Federal Reserve said.
Personal borrowing, excluding mortgages, rose at a 2.9 percent annual rate, or $4.2 billion, in August, the Fed said. In July, debt rose at a 7 percent rate, or $10.1 billion. Non- revolving loans, including those for auto purchases, rose in August at the slowest rate since June 1999.
The rise in total borrowing was the smallest since a 2.8 percent increase in December. Consumer confidence has slipped for four straight months, reflecting weak job growth and the declining stock market. This may slow the recovery because spending accounts for more than two-thirds of the economy.
``Consumer spending is about the only thing that's holding up the recovery,'' said Cary Leahey, senior economist at Deutsche Bank in New York. ``If the consumer feels that he's near the end, that's a problem.''
Economists expected consumer credit to rise by $10.9 billion in August, based on the median of 34 forecasts in a Bloomberg News survey. Total consumer debt in August was $1.73 trillion, down from $1.726 trillion in July.
Non-revolving credit, which includes automobile loans, rose $243 million in August after rising $3.7 billion the prior month. Credit card and other revolving debt rose $3.9 billion in the month, following a $6.3 billion increase in July.
Auto Sales
The figures showing a decline in auto loans and other non-revolving credit run counter to statistics showing car sales surged in August. Vehicles sold at an 18.7 million-unit annual rate, the most since October and up 13 percent from August 2001.
``Consumers could be using funds from refinancing to pay down car loans that aren't at zero percent or credit card balances that have much higher interest rates than their mortgages,'' said Brian Wesbury, chief economist at Griffin Kubik Stephens & Thompson in Chicago.
An index measuring applications in the U.S. for refinancing of mortgages rose last week to the highest level in more than a decade of record keeping, according to the Mortgage Bankers Association of America. Refinancing accounted for about 77 percent of all mortgage applications last week.
The Fed's consumer credit report doesn't include loans secured by real estate, such as mortgages and home-equity lines of credit. Mortgage debt is more than four times the amount of credit card debt, auto loans and other personal borrowing.
Consumer Credit Index
Consumers took on less debt in September than a month earlier, according to the Cambridge Consumer Credit Index, a monthly survey of 1,000 households. The index for last month's debt level fell to 58 from 72, and was the lowest since May. An index measuring consumer plans to borrow six months from now rose to the highest level since July.
Consumer spending grew at a 1.8 percent annual pace from April through June. That followed a 3.1 percent annual rate of increase during the first quarter. Low interest rates have kept consumers buying goods such as homes and cars through most of the year, limiting the severity of the recession that began in March 2001.
The average rate on a 30-year fixed mortgage was at 6.01 percent in the week that ended Friday, close to the lowest since the group began keeping track in 1971, according to Freddie Mac, the No. 2 buyer of U.S. mortgages. The average rate on a 15-year mortgage, a popular refinancing option, averaged 5.4 percent last week.
``With the amount of refinancing currently being done, people are improving their cash flow,'' said Russell Burdsall, chief sales executive at NetBank Inc.'s wholesale mortgage lending business. ``It's done a great deal to help out the burden that has been brought upon by the economy.''
Rising Incomes
Rising incomes also have given consumers the means to spend. Personal incomes in July were up 3.5 percent compared with August 2001, the Commerce Department said. Because of lower rates, debt- service payments declined for a second straight quarter to 14 percent of disposable income from April through June. In the first three months, the ratio was 14.1 percent.
Heightened concerns about the economy's outlook may damp spending going forward. Consumer confidence dropped in September to a 10-month low, as a slow rebound in hiring tempered attitudes.
Later this week, the government may report that sales at major retailers fell 1.1 percent in September, based on the median of 40 forecasts in a Bloomberg News survey of economists. It would be the first decline in four months and would follow a 0.8 percent gain in August.
Wal-Mart Stores Inc., the world's largest retailer, lowered its September sales forecast to an increase of 3 percent to 4 percent as shoppers bought less clothing. The discount retailer had forecast a gain of 4 percent to 6 percent at stores open at least a year in the five weeks ending Oct. 4. The company still expects profit in the third quarter ending Oct. 31 to rise to 40 cents to 41 cents a share, spokesman Tom Williams said.