- The Washington Times - Thursday, January 9, 2003

ASSOCIATED PRESS
Consumers, anxious about the stagnant job market and the economy, cut back on their borrowing in November by the largest amount in more than a decade.
Consumer credit plunged by a seasonally adjusted $2.2 billion in November from the previous month, or at a 1.5 percent annual rate, the Federal Reserve reported yesterday.
The drop surprised economists, who were forecasting a rise in borrowing during the month, and left consumer debt totaling $1.72 trillion.
The unemployment rate reached 6 percent in November, matching an eight-year high set in April. Companies have kept work forces relatively lean and are wary of big hiring commitments amid worries about a war with Iraq, economists say.
"Clearly, consumers are unnerved," said Richard Yamarone, economist with Argus Research Corp. "The sluggish labor market has taken its toll and caused consumers to retrench. Consumers are being more prudent in paying down accumulated debt and being more cautious in their spending," he said.
The $2.2 billion cutback in borrowing in November marked the biggest dollar decline since October 1991. The 1.5 percent rate of decline was the largest since April 1992, and November's performance was the first drop in borrowing since January 1998.
Mr. Yamarone said one factor might have been the late start to the holiday-shopping season. It kicks off the day after Thanksgiving, which last year came in the final week of November.
November's borrowing decline was led by a drop in revolving credit, such as credit cards, which fell by $1.57 billion, a 2.6 percent annual rate. That followed a $2.4 billion increase and a growth rate of 4 percent in October.
Demand for nonrevolving credit, which includes new cars and vacations, went down by $632 million, an annual rate of 0.8 percent. That came after an even bigger decline in October, when nonrevolving credit decreased by $905 billion, or a 1.1 percent rate.
The Fed's report on consumers includes credit card debt and loans for cars, boats and mobile homes. It does not include real estate loans, such as home mortgages or home-equity loans.
In October, consumers increased their borrowing from the previous month by $1.5 billion, representing a growth rate of 1.1 percent.
The Federal Reserve cut interest rates by one-half of 1 percentage point in November, its only rate reduction of 2002, as an insurance policy against the economy sliding into a new recession. The economy has been recovering fitfully from the 2001 recession.
Consumers have been the main force keeping the economy going, but businesses have been loath to make big commitments in investment.

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