Consumer Debt Fell in April

In an article published in today’s Wall Street Journal consumer debt moderated in April. The issue that many analysts are struggling with concerning the effects of consumer debt and its effects on consumer spending is that consumer debt ratios are running at all time highs. Consumer debt has grown by 25% - 30% as measured by the consumer debt service ratio since the 1980s and there is some question as to when the consumer is saturated with debt and how they will react if to higher gas prices, lower housing prices, higher unemployment, etc. This is basically un-chartered territory for most organizations so at this point there are a lot of opinions, but little else.

The latest data from the Federal Reserve show that American consumers are cutting back on borrowing and pulling less money out of their homes, moves that could signal a slowdown in spending.

The total amount the nation's consumers owe on credit cards, auto loans and other kinds of nonmortgage debt grew a smaller-than-expected $2.6 billion in April to $2.429 trillion, after jumping $14 billion in March, the Fed reported yesterday.

The slowdown stemmed largely from a decline in credit-card debt, which fell by about $400 million to $887.2 billion, suggesting that people might be giving their plastic a break.

Other Fed data showed that people are taking less money out of their houses through cash-out mortgage refinancings and home-equity loans, sources of funds some economists believe have provided a significant boost to spending in recent years.

Using the Fed data, J.P. Morgan Chase economist Michael Feroli estimated that so-called mortgage-equity withdrawal fell to an annualized $178 billion in the first quarter from $248 billion in the previous quarter. At the peak of the housing boom in 2005, the figure was $709 billion.