The Painful World

A Report by By Bob Willis from Washington

Consumer borrowing in the U.S. unexpectedly declined for the first time in six months in September as Americans took out fewer car loans and spent less at the gasoline pump.

Consumer credit, or non-mortgage loans to individuals, slid $1.2 billion, the most since 1992, to $2.37 trillion, the Federal Reserve said today in Washington. Credit declined at a 0.6 percent annual rate. In August, credit increased at a 4.7 percent rate that was higher than originally reported.

Americans racked up less credit card debt at filling stations in September as the price of gasoline fell. The decline in fuel costs is also helping consumers weather a housing slump that helped reduce the pace of economic growth to the lowest in three years last quarter.

``The use of credit cards to pay for gasoline purchases has probably gone down substantially since gas prices dropped,'' said Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``Credit use remains historically low.''

Economists forecast consumer credit to rise by $6 billion in September following an initially reported gain of $5 billion in August, according to the median of 37 estimates in a Bloomberg News survey.

The August gain in credit was revised up to $9.1 billion in today's report. The Fed's report is subject to large revisions that economists say reduce its reliability as a gauge of credit and spending.

Non-revolving debt, such as loans to buy cars and mobile homes, fell $4.05 billion in September, the first decline in 11 months, after rising $4.4 billion in August. Revolving debt, which includes credit cards, rose $2.85 billion, the smallest increase in six months, after gaining $4.74 billion.

Interest Rates

The Fed is trying to slow inflation without damaging an economy that expanded at a 1.6 percent pace in the third quarter. Policy makers have kept their benchmark interest rate unchanged for three consecutive meetings after a two-year cycle of increases.

Retail sales fell 0.4 percent in September, in large part because motorists spent less on gasoline. Excluding service station receipts, purchases climbed 0.6 percent, three times the gain in August. Sales at auto dealers and parts stores were unchanged in September after a 0.4 percent decline in August.

``This economy is in transition,'' said Mike Jackson, chief executive officer of AutoNation Inc., the country's biggest auto retailer, in an interview on Oct. 26 from Fort Lauderdale, Florida. ``The Federal Reserve has achieved its goal: It's knocked the consumer back down on their heels.''

Gasoline Prices

A gallon of regular gasoline at the pump averaged $2.52 in September, down from $2.95 in August, according to the American Automobile Association. The decline in fuel costs helped lift the Conference Board's index of consumer confidence in September from a nine-month low the prior month.

Rising wages have also left Americans with more cash in their wallets, reducing their reliance on credit, economists said. Spending by consumers is helping the nation overcome a housing slump and keeping the economy expanding at a pace the Fed predicts will be ``moderate.''

A decline in mortgage rates in recent months has prompted some consumers to turn back to home equity as a way to finance spending, giving them an alternative to costlier credit-card debt.

Rates on 30-year mortgages fell to an average 6.3 percent in the last week of September from 6.63 percent in the first week of August.

Applications to refinance home mortgages rose about 30 percent at the end of September from the beginning of August, according to an index published by the Mortgage Bankers Association. They're still running at about one-fifth the pace of their peak in 2003.

``I do not expect conditions in the housing market to spill over into the broader economy in a meaningful way,'' Cleveland Federal Reserve Bank President Sandra Pianalto said yesterday. ``Other sectors of the economy still look pretty good. For the most part, consumers are still buying things.''