US Maxes Out on Christmas Debt

THIS holiday season, Americans are proving that the nation's growing economy and better job prospects mean a bigger pile of presents under the family Christmas tree.

But a frenzy of buying at the nation's malls is leading to growing personal debt - and concern about what that may portend for the United States economy.

With less than one full shopping week left, retailers are reporting robust sales. Early discounts and easy credit are luring people into the stores. All told, by the time the buying is over, Americans will spend upward of $50 billion on each other.

Behind all the purchasing is ``higher levels of income, interest rates, and a strong economy,'' says Jay Scansaroli, head of Arthur Andersen's retail industry practice. The New York-based accounting firm's recent poll shows that over 80 percent of shoppers plan to spend at least as much as they did last year. A separate consumer survey conducted by the New York-based Conference Board finds that this year's buyers are quickly outstripping their 1993 spending levels.

But this ``feel-good'' approach that appears to stoke the economy's fire may actually help snuff out what has ignited it. To more conservative observers, the near future for average consumers who have little or no savings and have ``maxed out'' on their credit-card limits will soon reflect just how hard it will be for the country to stay on solid economic ground.

The coming months, for example, are traditionally the busiest time for collection agencies, which attempt to help companies make good on overdue credits taken on by over-extended customers. A sober forecast predicts that the bill collectors will be working exceptionally hard, a sign of trouble ahead for the nation's economy.

Sung Won Sohn, chief economist of Norwest Corporation, a Minneapolis-based finance firm, puts his consumers into two categories: the debt-haves and the debt-have-nots. The current pattern, he says, shows credit-card users sinking deeper into debt. ``Since the last recession, the debt-haves have been borrowing more and more, and the delinquency rate has been up.''

In Mr. Sohn's Minneapolis/St. Paul area, and across the country, the shopping malls are teeming, the parking lots are jammed, and the stores are full of inventory. Even taking the seasonal uptick into account, he says, that scenario will be short-lived.

Today, buyers feel good about their economic lot, he says, ``but with higher interest rates, a slower economy, and dimmer job prospects'' on the horizon, the future is not so bright. Currently, ``debt-haves'' - people with so-called installment debts, or monthly payments (exclusive of home mortgages) due on credit cards, car loans, and the like - represent some 40 percent of the consumer population. And some 15 percent of these debtors borrow more to pay off the debts they've incurred.

The credit crunch, a protracted period of bank-lending restraint that only recently had the Federal Reserve Board governors wringing their hands, has given way to loan-bidding wars. Credit-card companies flood the mail with offers to first-time credit users. Retailers push their own preferred credit line to consumers.

Credit is even a means of compensation. At Lord & Taylor, an upscale East Coast department store, employees can only receive their store discounts and bonuses through credit accounts. ``It certainly encourages us to buy,'' says a parttime shoe clerk in the Washington, D.C store.

With more workers on payrolls, ``people feel better about their job security, and they feel they can afford to buy on credit,'' says Margo Thorning, chief economist with the American Council for Capital Formation.

``Interest rates,'' she adds,'' are not yet enough of a factor to slow consumer spending.'' The adjustable home-mortgage rates that affect one-third of the home-loan borrowers ``haven't begun to ratchet up enough either,'' she says. When the rates do begin to eat into purchasing power, she says, ``people will cut back on discretionary spending.''

Fed watchers expect another interest rate hike by the end of January, when the Central Bank governors next meet. Testifying before the Congressional Joint Economic Committee earlier this month, Fed chairman Alan Greenspan underscored his intention to continue preemptive strikes against consumer good price hikes: ``The hallmark of a successful monetary policy will be an inflation rate that does not rise.''

His critics lash back that higher borrowing costs will not only cripple debtors' efforts for timely repayment, they will precipitate a dangerous drop-off in consumption that will slow the economy.

Mr. Greenspan says the ``driving force in the greater-than-expected economic strength in recent quarters has been inventory investment.''

By the next holiday season, critics caution, Fed policies may choke off the consumer demand that keeps producers shelves stocked. And buyers will rack up new levels of debt.