US consumers stepped up borrowing in March

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By MARTIN CRUTSINGER, Associated Press

WASHINGTON (AP) — Americans swiped their credit cards more often in March and took out more loans to attend school. That drove the biggest one-month increase in U.S. consumer borrowing in a decade.

Consumer debt rose by $21.4 billion in March from February, the Federal Reserve said Monday. It was the seventh straight monthly increase and the largest since November 2001.

A measure of auto and student loans increased by $16.2 billion. A separate gauge of mostly credit card debt rose $5.2 billion after declining in January and February.

Total borrowing rose to a seasonally adjusted $2.54 trillion. That's slightly below the all-time high of $2.58 trillion reached in July 2008, eight months after the Great Recession began.

After hitting that peak, consumers cut back sharply on borrowing for two straight years. They slowly began taking on more debt again in the fall of 2010 and in recent months have stepped up their rate of borrowing.

More borrowing is generally viewed as a healthy sign for the economy. It suggests consumers are gaining confidence and growing more comfortable taking on debt.

Analysts said a key factor driving the recent jump in borrowing is stronger hiring since fall.

But another reason more for the increase is more people are going back to school. Student loan debt jumped in March.

Paul Edelstein, director of financial economics at IHS Global Insight, said that could reflect an effort to take out loans in advance of a scheduled jump in rates this July.

Cooper Howes, an economist at Barclays Capital, said it could also mean that some people are having trouble finding jobs and are opting to go back to school.

"We expect that student loan growth will continue to push the level of consumer credit higher and we look for (credit card debt) to expand as banks become more willing to lend," Howes said.

The overall economy grew at an annual rate of 2.2 percent in the January-March quarter, helped by the strongest growth in consumer spending since late 2010. Consumer spending accounts for 70 percent of economic activity.

Still, job growth has slowed sharply in the past two months, while wages have lagged inflation. That has raised concerns that consumers might pull back on spending later this year.

Employers added just 115,000 jobs in April, the government said Friday. That followed the creation of 154,000 jobs in March. From December through February, the economy added an average of 252,000 jobs per month.

The employment report also noted that the average worker's hourly pay rose by just one penny in April. Over the past year, average hourly pay has ticked up 1.8 percent to $23.28. Inflation has been roughly 2.7 percent. Which means the average consumer isn't keeping up with price increases

With weaker income growth, U.S. households have spent more while saving less. The savings rate was 3.8 percent of after-tax income in March, nearly a full percentage point below the 4.7 percent where it had been three months before. For all of 2011, the savings rate declined to 4.7 percent of after-tax income, compared to 5.3 percent in 2010.

Households began borrowing less and saving more when the recession began and unemployment surged. While the expectation is that consumers are ready to resume borrowing, they are not expected to load up on debt the way they did during the housing boom of the last decade.

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.

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