Consumer borrowing up, but credit card use falls

[November 08, 2011]  WASHINGTON (AP) -- Americans borrowed more in September to buy cars and attend college, but they charged less to their credit cards for a third straight month. The figures suggest that consumers are growing more cautious about taking on high-interest debt in a weak economy.

Total consumer borrowing rose by $7.4 billion in September, the Federal Reserve said Monday. In August, it had fallen by the most in 16 months.

The September increase reflected a 5.8 percent increase in borrowing in the category that includes car and student loans. But the category that covers credit card purchases dropped 1 percent after larger declines in July and August.

Credit card use has sunk nearly 19 percent since September 2008, the height of the financial crisis. For many consumers, adding debt with high interest rates is too risky when jobs are scarce, pay raises are few and unemployment has been stuck near 9 percent for more than two years.

"Households continue to prefer cash over credit as employment, income and wealth prospects remain feeble," said Gregory Daco, principal U.S. economist at IHS Global Insight.

The average annual percentage rate, or APR, on credit cards ticked up for variable-rate credit cards to 14.46 percent and was unchanged at 13.71 percent for fixed-rate credit cards, according Bankrate.com.

Auto loans are far cheaper. The average rate for a 48-month new-car loan was 5.31 percent last week.

The average rate for subsidized student loans was 4.5 percent last year, according to Student Loan Consolidator.com. Loans not subsidized by the federal government are capped at 6.8 percent through 2012.

Earlier this year, many economists worried the economy was at risk of slipping back into another recession. In August, the government said the economy grew at an annual rate of just 0.9 percent in the first half of the year, and Europe's debt crisis jolted financial markets.

Those fears have since eased. The economy grew at an annual rate of 2.5 percent in the July-September period, the government said, the best quarterly growth in a year. Consumer spending grew three times as fast as it had in the spring.

Still, growth would have to be nearly twice as high -- consistently -- to make a major dent in the unemployment rate, which has been stuck near 9 percent for more than two years.

And economists worry that the summer spending gains can't be sustained. Americans spent more in the July-September quarter even though they earned less. And they used their savings to make up the gap.

Troy Davig, an economist at Barclays Capital, said he expects consumers to borrow more in the coming months as the economy improves.

"Barring any major shocks, I think we will see gradual improvement," Davig said. "But we are not expecting anything dramatic in terms of credit growth."

Without more jobs and higher pay, consumers may be forced to cut back on spending. That would slow growth. Consumer spending accounts for 70 percent of economic activity.

On Friday, the government said the unemployment rate dipped to 9 percent in October from 9.1 percent, where it had been stuck for three months. The nation added 80,000 jobs, barely enough to keep pace with population growth.

Households began borrowing less and saving more when the country fell into a recession and unemployment surged. While economists believe Americans will gradually increase borrowing in coming months, they do not expect consumers to load up on debt the way they did during the housing boom.

Americans felt wealthier then and were more willing to take on added debt because of the soaring value of their homes.

The Federal Reserve's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

[Associated Press; By MARTIN CRUTSINGER]

AP Economics Writer Derek Kravitz contributed to this report.

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