Consumers Borrow More for Student Loans

U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases.

Borrowing increased by $7.6 billion, or 3.8 percent, in February, the Federal Reserve said Thursday. It was the fifth consecutive monthly gain.

All of the strength in February came in the category that includes car loans and student loans. That increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked, a cautionary sign for an economy in which consumer spending drives 70 percent of growth.

Still, Mark Zandi, chief economist at Moody’s Analytics, said it may actually be a good thing that fewer Americans are charging goods on their plastic.

“I think households have done a good job of getting their financial books in order and that will lay the foundation for more prudent borrowing going forward,” Zandi said.

The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.

Households began borrowing less and saving more as they struggled to cope with the severe 2007-2009 recession. But economists expect that the period of belt-tightening is ending. They see consumer spending being supported this year by increased borrowing, rising employment and the Social Security tax cut that is giving households more after-tax income to spend.

The Fed’s monthly consumer credit report covers auto loans, student loans and credit card financing but excludes loans secured by real estate such as mortgages and home equity loans.

Source: The Associated Press