U.S. Consumer Debt Up $6.9 Billion in January on Credit Cards

U.S. consumer borrowing rose in January as Americans doubled their credit-card debt from a month earlier, Federal Reserve statistics showed.

Consumer credit increased by $6.9 billion for the month to $2.52 trillion, the Fed said today in Washington. In December, credit gained $3.7 billion, less than a previously reported increase of $4.5 billion. The report doesn't cover borrowing secured by real estate, such as home-equity loans.

Consumers once dependent on home-equity financing are turning to other forms of short-term borrowing after the collapse in subprime mortgages made it tougher to qualify for loans, economists said. Personal income in January rose at a slower pace than inflation, and credit card usage in January rose for a second straight month.

The uncertainties surrounding home values, employment, soaring prices, and general macroeconomic conditions sent chills down the spines of the American consumer, said Richard Yamarone, an economist at Argus Research in New York, before today's report.

Economists had forecast January consumer credit would increase by $7 billion, according to the median of 32 estimates in a Bloomberg News survey.

After adjusting for inflation, consumer spending stalled for a second month in January, increasing concern that the economy is headed for a recession. Consumer spending accounts for two-thirds of the economy.

Total borrowing increased at a 3.3 percent annual rate in January after rising at a 1.8 percent pace during December. By category, revolving debt such as credit cards rose $5.5 billion during January and non-revolving debt, including auto loans, increased $1.4 billion for the month.

Job Losses

Earlier today, the Labor Department said the U.S. unexpectedly lost jobs in February for the second consecutive month, adding to evidence the economy is in a recession. Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January. The jobless rate dropped to 4.8 percent, reflecting a shrinking labor force as some people gave up looking for work.

The U.S. central bank's Federal Open Market Committee is scheduled to meet to discuss interest-rate policy March 18, and economists anticipate the central bank will again lower its benchmark lending rate.

At its Jan. 30 session, the Fed panel lowered the rate by a half percentage point to 3 percent for the fifth reduction since September. Commercial banks, in turn, lowered their prime lending rate to 6 percent from 6.5 percent.

The housing contraction, now in its third year, has hurt both borrowers and lenders. Mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable- rate loans surrendered their properties, the Mortgage Bankers Association said yesterday.

Late payments and charge-off rates on credit cards will probably increase for the next year, according to a Feb. 11 statement by Moody's Investors Service in New York.