Debt-burdened consumers are finally taking a bit of a breather. The government says consumer debt rose in May at the slowest pace in more than three years.
The amount of debt owed by Americans rose at an annual rate of 4.9 percent in May, down from a 7.2 percent rate in April, the Federal Reserve reported Monday.Both gains were the smallest since mid-1993 and were far below the double-digit increases turned in during much of the past two years as consumers went on a borrowing spree.
Analysts attributed the slowdown to both consumers and lenders becoming more cautious, reflecting the fact that delinquencies and personal bankruptcies have been rising in recent months.
"The credit card companies are tightening their standards. They are offering fewer new credit lines than they were just six months ago," said Paul Getman, an economist at Regional Financial Associates in West Chester, Pa.
Getman predicted consumer spending will begin to slow if lenders continue to tighten credit standards. Consumer spending accounts for two-thirds of total economic activity and has been the major driving force behind the current expansion.
The May advance left total consumer debt, defined as loans not secured by real estate, at $1.15 trillion, up $4.7 billion from April. It passed the $1 trillion mark for the first time last year.
This measurement of consumer debt does not include home mortgages, home equity lines of credit or any other loan secured by real estate.
David Wyss, chief financial economist at DRI McGraw Hill Inc. in Lexington, Mass., cautioned against reading too much into the drop in the rate consumers are adding to their debt burdens.
"We are not seeing a major swing in credit habits. We are seeing a minor swing as the consumer becomes a bit more cautious," he said.
The category of consumer credit that includes credit cards rose at an annual rate of 16.1 percent in May, down from an April rate of 20.3 percent. The increase left debt in this category at $444.4 billion, a gain of $5.9 billion from April.
The slowdown was more pronounced for auto loans, which rose at an annual rate of 3.4 percent in May.