Consumer Borrowing Fell by $11.5 Billion in February
Consumer borrowing fell again in February, reflecting weakness in credit cards and auto loans. It marks a setback to hopes that consumers are beginning to feel more confident and will start spending more.
The Federal Reserve said Wednesday that borrowing declined by $11.5 billion in February, surprisingly weaker than the small $500 million gain that economists had expected. The February decline was the 12th decrease in the past 13 months as consumers slash borrowing in the face of a deep economic recession and high unemployment.
In January, borrowing rose by $10.6 billion, a gain that had broken a record 11 consecutive declines.
In percentage terms, the January increase represented a rise of 5.2 percent at an annual rate while the February decline marks a drop of 5.6 percent.
The February weakness reflected a sizable 13.6 percent drop in revolving loans, the category that includes credit card debt, and a smaller 1.6 percent decline in nonrevolving loans, the category that covers auto loans.
A revival in consumer borrowing and spending is seen as crucial to providing support for the overall economy, which is still struggling to emerge from the worst recession since the 1930s.
Federal Reserve Chairman Ben Bernanke said Wednesday that the economy seems to have stabilized and is growing again but threats remain.
"We are far from being out of the woods," Bernanke told a business audience in Dallas. "Many Americans are still grappling with unemployment or foreclosure or both."
Economists are hoping that consumer borrowing will stabilize in coming months and resume growing although they caution that the rebound will be restrained by tighter credit restrictions imposed by many banks in the wake of the financial crisis.
Consumers who would like to borrow are finding it hard to get credit at banks, who are being pushed by regulators to bolster their lending standards.
The $11.5 billion decline in consumer borrowing in February pushed total borrowing down to $2.45 trillion, 4 percent below where it was a year ago. The Fed's measure of consumer credit excludes home mortgages and other loans secured by real estate.
While economists have for years worried about the low rate of personal savings in the United States, analysts are now concerned that unless borrowing stabilizes it could derail the recovery because it will crimp consumer demand. Consumer spending accounts for 70 percent of total economic activity.