US consumer borrowing rose US$10.4bn in July


Wed, Sep 11, 2013 - Page 15

Americans cut back on using their credit cards in July for the second straight month, while taking on more debt to buy cars and attend school. The decline in credit card use suggests consumers remain cautious, a trend that could hold back economic growth.

Consumers increased their borrowing US$10.4 billion in July from June to a record high of US$2.85 trillion, the US Federal Reserve said on Monday. That followed a gain of US$11.9 billion in June.

A category that includes auto loans and student loans increased US$12.3 billion in July to a record US$2 trillion. However, a measure consumers’ credit card debt fell US$1.8 billion to roughly US$850 billion. That followed an even larger US$3.7 billion decline in the credit card category in June.

July’s pattern of consumers’ borrowing habits illustrated trends that have surfaced in the post-recession economy: Americans are using credit for their most urgent needs, while foregoing debt for discretionary purchases.

The auto and student loan category is up 8.1 percent from a year ago and has risen in every month but one since May 2010.

However, credit card debt has barely changed in the past year and is nearly 17 percent below its peak hit in July 2008 — seven months after the Great Recession began.

Slow but steady job growth and small wage gains have made many Americans more reluctant to charge goods and services to their plastic. That could hold back consumer spending, which accounts for 70 percent of economic activity. Americans may also be hesitant to take on more high-interest debt because of higher Social Security taxes.

At the same time, the weak economy is sending more people back to school. The US Federal Reserve’s consumer credit report does not separate student loans and auto loans.

However, the Federal Reserve Bank of New York quarterly report on consumer credit shows student loan debt has been the biggest driver of borrowing since the Great Recession officially ended in June 2009.

Economists are hoping that as the impact of those higher taxes fades, consumer spending will strengthen in the second half of this year. That forecast is also counting on steady job growth to bolster income growth and support higher spending.

However, there are forces still working to dampen growth, including thousands of federal furloughs which depressed income growth in July. And job growth has been weaker than first thought.

The government reported that employers added 169,000 jobs last month, but 74,000 fewer jobs in June and July than previously reported.

The unemployment rate dropped to 7.3 percent, but lowest in nearly five years. However, the rate fell because more Americans stopped looking for work and were no longer counted as unemployed.

The overall economy grew at an annual rate of 2.5 percent in the April-June quarter. However, recent data has economists predicting that growth may be slowing in the July-to-September quarter to an annual rate of 2 percent.

The Fed’s borrowing report tracks credit card debt, auto loans and student loans, but not mortgages, home equity loans or other loans secured by real estate.