Latest News

The Canadian Press - ONLINE EDITION

US consumer borrowing up in December behind auto, student loans; but credit card use falls

By: Martin Crutsinger, The Associated Press

Posted: 02/7/2013 2:12 PM | Comments: 0 | Last Modified: 02/7/2013 4:46 PM

In this Wednesday, Dec. 12, 2012 photo, Lana Nguyen, right, holds clothes to try on as she shops with Lisa George, left, and friends in an H&M store, in Atlanta. The Federal Reserve reports how much consumers borrowed in December on Thursday, Feb. 7, 2013. (AP Photo/David Goldman)

WASHINGTON - Americans stepped up borrowing in December to buy cars and attend school. But they cut back sharply on credit card use, continuing a trend that could hold back growth this year.

Consumer borrowing rose $14.6 billion in December from November to a total of $2.78 trillion, the Federal Reserve said Thursday. That's the highest level on record.

The increase was driven entirely by gains in student and auto loans. Borrowing in the category that measures those loans increased $18.2 billion to $1.93 trillion. That's the biggest monthly gain since November 2001.

Credit card debt, however, fell $3.6 billion to total roughly $850 billion. Total credit card debt has declined 17 per cent since July 2008.

Americans have been relying less on their credit cards since the Great Recession. And December's decline could also be a signal that consumers were worried about higher Social Security taxes that began lowering take-home pay this year.

"High unemployment and the increase in payroll taxes will leave households reluctant to run up big credit card balances," said Paul Edelstein, director of financial economics at Global Insight. "An unwillingness to take on this form of debt will limit the speed at which consumer spending will grow this year."

The Federal Reserve's monthly consumer credit report does not separate auto loans from student loans. But according to quarterly data compiled by the Federal Reserve Bank of New York, student loan debt has been the biggest driver of borrowing since the recession.

Student loans have risen 63 per cent since mid-2008 to total $956 billion as of September of 2012, according to the New York Fed. The increase partly reflects high unemployment, which has led many Americans to seek better education and skills in a more competitive labour market.

Auto loans are slightly lower than their total level in mid-2008. But they have risen roughly 9.4 per cent since mid-2010 to total $750 billion as of September, according to the New York Fed report.

U.S. automakers are coming off their best year for sales in five years, helped by extremely low interest rates that have encouraged more borrowing.

Analysts expect credit card debt to stay weak this year. That could slow consumer spending and keep growth weak.

One reason is that Americans will have smaller paychecks. Congress and the White House reached an agreement last month to prevent income taxes from rising on most Americans. But the deal did not extend a temporary cut in Social Security taxes, which expired on Jan. 1.

The two percentage point increase means a person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

Most economists expect the tax increase could trim the economy's growth by about one-half a percentage point this year.

Consumers spent more in December, according to a government report last week, though the increase was slower than in November. Consumer spending drives about 70 per cent of the economy.

The overall economy actually shrank in the October-December period, dipping at an annual rate of 0.1 per cent. It was the first quarterly decline since the recession was ending in the summer of 2009.

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.

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories? Please use the form below and let us know.

* Required

In which story did you find the error? *
Please post the headline of the story or the title of the video with the error.
What was the error? *
Please post exactly what was wrong with the story.
What should we have written?
Please indicate your source for the correct information.
Who else should we interview to improve this story?
Please include any contact information you may have.
Can we contact you in the future for advice on stories about this topic?
Yes

No
First Name: *
Last Name: *
E–mail Address: *
This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.
Phone: *
This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.
Colour:
Are you blue? If you can see this, leave it blank and get some CSS support.
Enter the words that you see: * This is to prevent our forms from being filled out automatically.
You have failed to correctly identify the words in the box above. Please try again.

More Latest News

Undock

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is register and/or login and you can join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.