American consumers added a record $10.4 billion to their installment loans outstanding in February, bringing to $470 billion the amount on which they are making monthly payments, the Federal Reserve said Friday.
The skyrocketing pace of borrowing can be both a sign of consumer optimism and a cause for concern among some economists, who see the possibility growing of a sudden cutback in borrowing and spending further down the road.
Data for retail sales in March (published Thursday), the latest spending data available, showed February`s increase was followed by a 1.9 percent decline, the most in more than seven years.
February`s growth in outstanding credit exploded at an annual rate of 27.1 percent, just slightly less than the record high rate in the spring of 1984, when the entire economy was expanding at a blistering pace.
The difference now is that the economy is apparently expanding very slowly, personal income is only creeping up and inflation-adjusted income is down over the last year.
Some economists consider it an early sign of a maturing business cycle if consumers start borrowing heavily because they need to, rather than because they want to.
The Fed said 37 percent of the $10.4 billion increase in credit went to buy automobiles. The average new-car loan cost less in January, averaging an interest rate of 13.78 percent at auto dealerships, down from January`s 15.1 percent.
The figures have demonstrated that the high cost of credit has hardly dampened enthusiasm to borrow. But borrowers are getting longer terms, with the average auto loan now stretching more than four years, at 51.4 months.
Revolving credit typical of department store and credit card accounts grew by $2.5 billion in February.
The total increase for personal loans shot up to $3.7 billion, $1.2 billion higher than in February.
