Consumer Lending Sagged in February

More consumers are keeping up with payments on their credit cards and other loans. But that is coming at a cost: They are cutting back sharply on borrowing as they pare back debt. While that is good for the long-term financial health of households, the development could slow spending and the overall economic recovery.
Consumer borrowing declined at a 5.6% annual rate in February to $2.45 trillion, the Federal Reserve said Wednesday. Consumer borrowing, which includes most loans outside of real estate, had increased 2.1% in January, reflecting how borrowers typically slow payments after running up card balances over the December holidays. Revolving credit, largely credit-card borrowing, declined at a 13.1% annual pace in February. Nonrevolving credit—including loans for cars, boats and education—fell at a 1.6% annual rate that month. Analysts attributed part of the February decline to winter storms that kept consumers at home.

Consumer Confidence Rose Sharply in May

Associated Press - A private research group said Tuesday that consumer confidence in May soared to the highest level since last September amid tentative signs that the economy was improving.

The Conference Board said that its Consumer Confidence Index, which had sharply increased in April, zoomed past economists’ expectations to 54.9, from a revised 40.8 in April.

Economists surveyed by Thomson Reuters were expecting 42.3.

The reading marks the highest in eight months, when the level was 61.4. The levels are also closer to the year-ago reading of 58.1.

The present situation index, which measures how shoppers feel now about the economy, rose to 28.9 from 25.5 last month. But the Expectations Index, which measures shoppers’ outlook over the next six months, climbed to 72.3 from 51.0 in April.

“Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labor market and incomes will improve in the coming months,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. “While confidence is still weak by historic standards, as far as consumers are concerned, the worst is now behind us.”

The upbeat reading was good news for merchants, which are counting on consumers to be in the mood to spend, after confidence plummeted to record lows.

The Consumer Confidence survey — whose responses were received through May 19 from a representative sample of 5,000 households — showed a marked improvement in consumers’ outlook for jobs. The percentage of consumers expecting more jobs in the months ahead increased to 20.0 percent, from 14.2 percent, while those anticipating fewer jobs declined to 25.2 percent, from 32.5 percent. The proportion of consumers anticipating an increase in their incomes edged up to 10.2 percent, from 8.3 percent.http://www.nytimes.com/2009/05/27/business/economy/27consumer.html

When Consumers Cut Back: A Lesson From Japan

TOKYO — As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the United States and China. But even as the economy expanded, shell-shocked consumers refused to spend. Between 2001 and 2007, per-capita consumer spending rose only 0.2 percent.

Now, as exports dry up amid a worldwide collapse in demand, Japan’s economy is in free-fall because it cannot rely on domestic consumption to pick up the slack.

In the last three months of 2008, Japan’s economy shrank at an annualized rate of 12.7 percent, the sharpest decline since the oil shocks of the 1970s.http://www.nytimes.com/2009/02/22/business/worldbusiness/22japan.html

Consumers Keep Recovery at Bay

The Wall Street Journal - U.S. manufacturing activity got a bit of a reprieve in January, but steep declines in consumer spending suggest talk of a recovery in that sector is premature.

The Institute for Supply Management on Monday said manufacturing activity contracted in January, but at a slower rate than in December, based on a survey of suppliers in 18 manufacturing industries. Activity rose to 35.6 from December's 32.9, which was the weakest since ISM records began in 1948, as new orders and production showed particular improvement. But activity in the sector overall remained below 50 -- the level indicating growth -- for the 12th month in a row.

"I'm hesitant to be encouraged, but at least the rate of decline has slowed," survey chairman Norbert Ore said. He said the sector's dependence on the housing and auto industries suggests that until those show some improvement, troubles are likely to persist.

The sharp decline in consumer spending is a key reason why housing, autos and manufacturing continue to struggle. A Commerce Department report released Monday showed consumer spending fell 1% in December, the fifth-straight monthly decline.

The drop reflected lower prices on goods and services, as well as softer demand. Prices fell 0.5% from the prior month after a 1.1% drop in November, while the "core" index that excludes food and energy prices -- a gauge of inflation -- was unchanged.

Consumer spending is under pressure as personal income continues to slump and battered Americans shift into savings mode. Personal income sank 0.2% in December from the previous month, the third-consecutive decline. Meanwhile, the savings rate rose to 3.6% of after-tax income from 2.8% in November; economists say it could hit double digits by year's end, a sharp reversal from the low and even negative rates seen earlier this decade.http://online.wsj.com/article/SB123358108427239133.html