Byline: Dennis Jacobe

Synopsis: A new Experian/Gallup Personal Credit Index (PCI) poll shows consumers becoming more cautious about borrowing, with fewer intending to apply for credit in the months ahead. Add the rising cost of gas to the equation, and former Federal Reserve Chairman Alan Greenspan's

PRINCETON, NJ -- One of the key factors allowing U.S. consumers to continue spending has been the ready availability of consumer credit and the willingness of the public to use it. Of course, the ability of homeowners to borrow by way of home equity loans has not only played a big role in making credit easily available to consumers at historically low interest rates but has also allowed many Americans to rebuild their personal balance sheets using various forms of consolidation loans. In turn, one might reasonably assume that today's consumers are not only comfortable with their current debt loads but readily willing to add to them.

The May 2-7, 2007, Experian/Gallup Personal Credit Index (PCI) poll, however, suggests that nearly one in four consumers are uncomfortable with their current level of debt. Even more significantly for the economic outlook, nearly half of Americans say they would be uncomfortable making a major purchase during the next three months.

Consumer Debt

Even with all of the consumer debt restructurings during recent years and the continued presence of historically low interest rates, a significant percentage of consumers -- 23% -- say they are somewhat or very uncomfortable with what they owe in terms of auto loans, home mortgages, home equity loans, credit cards, and their other debts or loans. Even more importantly, 14% of consumers say they are somewhat or very uncomfortable with their ability to make their monthly payments on their current debt during the next three months.

Major Consumer Purchases

Of course, prospects for the U.S. economy during the months ahead depend to a substantial degree on the future course of consumer spending. In turn, consumer willingness to take on new debt plays a key role in whether consumers will continue to make major purchases as they have in the past. In this regard, nearly half (49%) of consumers say they would feel somewhat or very uncomfortable making a major purchase, such as a home, a car, major appliances, or some other significant purchase, in the next three months.

Intentions to Borrow and Consumer Demand

The subprime mortgage debacle raises the concern that declining housing values and toughening lending standards may limit the availability of credit to consumers as 2007 progresses. In turn, this special form of credit crunch could limit future consumer spending.

The new Experian/Gallup poll raises a somewhat different issue, which deals with the willingness of consumers to borrow. The fact that a significant percentage of consumers are uncomfortable with their current level of debt, combined with the notion that many consumers do not want to add to that debt by making a major purchase, provides some reason for concern that consumers may be pulling back on their spending during the next several months. In this regard, it should be noted that while 21% of consumers polled told Gallup they had applied for consumer credit during the past three months, only 11% said they plan to apply for credit sometime during the next three months.

Of course, consumers have continued to spend in the face of fierce economic headwinds in the past. Still, add today's increased consumer caution about adding debt to gas prices in excess of $3 a gallon, and former Federal Reserve Chairman Alan Greenspan's recent proclamation of a one in three probability of a U.S. recession seems somewhat conservative.

Survey Results

Results for the survey are based on telephone interviews with 1,008 national adults, aged 18 and older, conducted May 2-7, 2007. For results based on the survey, one can say with 95% confidence that the maximum margin of sampling error is [+ or -]3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.