Consumer borrowing plummets
WASHINGTON — Consumer borrowing fell in September by the largest amount since the recession of the early 1990s, weakened by a huge drop in auto loans.
The Federal Reserve reported Tuesday that borrowing declined at an annual rate of 0.6 percent in September, compared with a 4.6 percent rate of increase in August. Borrowing fell by $1.2 billion in September — the biggest drop since a $1.78 billion decrease in April 1992.
It was the first decline since March, when borrowing marked a far milder decrease of 0.24 percent.
Borrowing for auto loans slipped at an annual rate of 3.2 percent in September, reversed from an increase of 3.5 percent the previous month. September loans in that category dropped by $4.05 billion, the largest fall since the $4.81 billion decline in October 1991.
The overall economy has lost momentum due to the housing slump. The struggling auto industry slashed jobs last month, as did companies involved in home building, furniture making and real estate — casualties of the souring housing market.
Fresh evidence came Tuesday, when luxury home builder Toll Brothers Inc. forecast a 10 percent drop in quarterly construction revenue. Beazer Homes USA Inc. posted a 44 percent decline in fourth-quarter earnings due to lower demand for new homes.
Voters’ view of job availability, wage growth and other economic conditions was playing a role in the nationwide balloting in Tuesday’s midterm elections.
President Bush’s approval rating on the economy is at 40 percent, according to a recent AP-Ipsos poll.
Wall Street extended its November rally Tuesday, carrying the Dow Jones industrials to a new trading high as investors anticipated a business-friendly outcome of the elections.
The broad advance came as investors bought stocks optimistically ahead of an election that could strip power from Republicans in the House for the first time since 1994. Stocks often rally on elections as Wall Street bets that change will lead to an environment more favorable to business; the theory is that a power split in Washington will create legislative gridlock, slowing down regulatory change.
The Dow rose 51.22, or 0.42 percent, to 12,156.77, building on Monday’s 119-point gain.
By contrast, the Fed report showed that borrowing in the category that includes credit cards rose at an annual rate of 4.0 percent in September. That was more anemic than the gain of 6.7 percent in August, however.
Both of those increases were below the double-digit gains in May and June, months in which economists believe consumers were using their credit cards as a way to cope with soaring energy prices.
Economists have said they believe the recent declines in gasoline and other energy costs should help consumer spending in the months ahead and keep the country from falling into a full-blown recession.