Consumer credit falls in November for record 11th month, as Americans pay down credit cards

Consumer credit down in Nov. for record 11th month

WASHINGTON — Americans borrowed less for an 11th consecutive month in December, paying off credit cards while increasing borrowing for cars and other products.

The mixed picture raises hopes that Americans may soon return to spending, a necessary condition for economic recovery.

But the record 11-month decrease in overall borrowing shows consumers are still holding back amid lingering economic uncertainty and 9.7 percent unemployment.

The Federal Reserve said Friday that total borrowing dropped by $1.8 billion — far less than the revised $21.8 billion decline in November. It also was well below the $9 billion expected by analysts surveyed by Thomson Reuters.

While economists have worried for years about the low rate of U.S. savings, the concern now is that consumers could derail the recovery if they start saving too much of their incomes. Consumer spending accounts for 70 percent of total economic activity.

Borrowing on credit cards fell by $8.5 billion, while other types of loans increased by $6.8 billion.

That means consumers are more willing to take out loans for big-ticket items like cars, boats or education. But they may not be using credit cards to augment their income as freely as in the past.

The change also may reflect card issuers’ scrambling to raise rates and cut lines before tough consumer protection rules take effect next month.

Under a law Congress passed last year, card issuers will be limited in how quickly they can hike rates and must enact other consumer protections. They have responded with a flurry of rate hikes and other provisions that make it more costly — and less appealing — for consumers to carry balances on their cards.

Americans also are borrowing less because they remain fearful about their job prospects. The government reported Friday that employers cut an additional 20,000 jobs last month — worse than the 5,000 gain analysts expected — bringing total job losses to more than 8 million since the recession began in December 2007.

But overall unemployment fell slightly, to 9.7 percent, a sign that the job losses may finally be reversing.

Consumers who would like to borrow more are finding it hard to get credit at banks. Many banks, hit by the worst financial crisis since the 1930s, have been pushed by regulators to tighten their lending standards.

December’s revised $1.8 billion drop in total consumer credit was the smallest drop in percentage terms since the downward trend started 11 months ago. It represented an 0.8 percent decline in consumer credit from the month before.

By contrast, November’s revised $21.8 billion drop in total credit was the biggest amount in dollars terms since records began in 1943.

The Fed’s credit report excludes home loans and home equity mortgages, only covering borrowing that is not secured by real estate.

The drop in overall credit for 11 straight months was a record in terms of consecutive declines, surpassing the old mark of seven straight declines set in 1943 and again in 1991.

Borrowing in the category that includes credit cards has fallen for 15 straight months, also a record.

With the string of declines, overall consumer borrowing by the Fed measure has fallen to $2.46 trillion.