Byline: Dennis Jacobe

Synopsis: Consumer credit perceptions hit a seven-month low in June, according to the new Experian/Gallup PCI poll. One result of this may be a reduction in the number of consumers seeking new credit in the months ahead. Still, the current consumer credit pullback

PRINCETON, NJ -- Consumer perceptions of the U.S. credit markets hit a seven-month low in June, according to the new Experian/Gallup Personal Credit Index (PCI). In part, the decline in the PCI reflects the general issues weighing on consumer confidence, including $3 gas prices at the pump, weakness in both the auto and housing industries, and international tensions around the world.

More specifically, consumer credit perceptions have also been negatively affected by the sub-prime mortgage debacle and, most recently, the surge in long-term interest rates. Of course, the key question for the future is whether the recent decline in consumer credit perceptions will have a negative impact on consumer borrowing and spending during the second half of the year.

Credit Perceptions Decline

In January and February 2007, consumer perceptions hit a new high, as the Experian-Gallup Personal Credit Index (PCI) reached 105 during both months. Since that point, however, consumer perceptions have deteriorated, with the Index running between 90 and 92 from March to May before declining once more to 87 in June. This is the lowest level for the PCI since November. The PCI survey is conducted monthly and the Index had a baseline score of 100 when it was initiated in January-February 2005.

Consumers Worried About Debt

In June, nearly one in four consumers say they are somewhat (15%) or very (8%) uncomfortable with their current debt burden.

Fewer Consumers Plan to Seek Credit

In June, one in five consumers say they applied for credit over the previous three months. Reflecting their concerns about borrowing in the immediate future, only 1 in 10 consumers say they intend to apply for credit during the next three months. Probably best reflecting the current credit situation, 16% of consumers say someone close to them has recently been turned down for credit.

Consumer Credit Crunch?

The results of this new survey, which show that consumer credit-market perceptions have deteriorated as the year has progressed, are consistent with declines seen in both the housing and auto sectors. It seems clear that consumers are pulling back on their credit use -- at least as far as big-purchase items are concerned.

On the other hand, when asked about their perceptions of overall credit availability in comparison with three months ago, only 1 in 20 consumers suggest that less credit is available to them today. In turn, this implies that lenders and regulators have not reacted to the sub-prime mortgage and foreclosure mess by significantly tightening credit availability -- at least, not to the degree that it is obvious to many consumers.

Of course, the recent surge in long-term interest rates worldwide could significantly change these perceptions in the months ahead. While much of Wall Street seems to believe the U.S. economy is strong enough to largely ignore this shift in the shape of the yield curve, the Fed may look back at its assessment of the current economy and the associated interest rate trends with some regret later this year.

Survey Methods

Results for the survey are based on telephone interviews with 1,002 adults, aged 18 and older, conducted June 2-7, 2007. For results based on the total sample, 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.