Borrowing increases by smallest amount in eight months

WASHINGTON (AP) _ Americans, anxious about the economy's direction and a possible war with Iraq, increased their borrowing in August by the smallest amount in eight months. <br><br>Consumer credit

Monday, October 7th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Americans, anxious about the economy's direction and a possible war with Iraq, increased their borrowing in August by the smallest amount in eight months.

Consumer credit rose by a seasonally adjusted $4.2 billion in August from the previous month, or at a 2.9 percent annual rate, the slowest pace since December, the Federal Reserve reported Monday.

The increase - much smaller than the $12 billion advance many analysts were forecasting - left consumer debt totaling $1.73 trillion.

"Consumers slowed it down a bit in August, which is understandable because that seemed to be the peak of uncertainties with the stock market, a possible war and corporate impropriety," said economist Richard Yamarone of Argus Research Corp.

Even though consumers were more cautious about adding debt in August, they still continued to buy, giving sales at the nation's retailers a solid boost during the month.

Low interest rates, rising home values and extra cash from a refinancing boom have supported consumer spending this year, helping to offset potentially negative factors such as the turbulent stock market, a lackluster jobs market and eroding consumer confidence.

"Uncertainties plaguing the economy didn't stop consumers from ringing up the cash register in August," Yamarone said. He said he was optimistic consumers would continue to spend, helping the economic recovery.

In August, demand for nonrevolving credit, which includes new cars and vacations, grew by just $243.4 million, or at an annual rate of 0.3 percent. That was the smallest increase since June 1999 and marked a considerable slowdown from a $3.7 billion increase, or a 4.5 percent growth rate, in July.

Revolving credit, such as credit cards, went up by $3.9 billion, or at a 6.5 percent annual rate. That followed a brisk $6.3 billion increase and a growth rate of 10.6 percent in July.

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 increasingly popular home equity loans.

In July, consumers increased their borrowing by $10.1 billion, a rate of 10 percent, according to revised figures. That was slightly less brisk than the Fed previously reported.

Over the objections of two members, the Federal Reserve last month decided to hold short-term interest rates steady at 41-year lows. The two dissenters favored a rate cut, the first of the year. Some economists believe the Fed will move rates lower at its next meeting on Nov. 6, but others predict policy-makers will continue to stay on the sidelines.