Consumers are resorting to their credit cards to make ends meet. For the eighth straight month, consumers borrowed more cash from their credit card accounts.
Consumers borrowed more for 8th month in May
Consumers borrowed more in May and increased credit use for only 2nd time in nearly 3 years
WASHINGTON (AP) — Americans took on more debt in May and used their credit cards more for only the second time in nearly three years. Consumers stepped up their borrowing just as the economy began to slump and hiring slowed.
The Federal Reserve said Friday that consumer borrowing rose $5.1 billion in May, the eighth straight monthly increase. It followed a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.
The overall increase pushed consumer borrowing to a seasonally adjusted annual level of $2.43 trillion in May. That was just 1.7 percent higher than the nearly four-year low of $2.39 trillion hit in September.
Borrowing is a sign of confidence in the economy. Consumers tend to take on more debt when they feel wealthier. That boosts consumer spending. Ultimately, it gives businesses more faith to expand and hire. But an increase in credit card debt can also be a sign of people falling on harder times.
The economy added just 18,000 jobs in June, the fewest in nine months, the Labor Department said Friday. It was the second straight month of feeble job growth. The unemployment rate rose to 9.2 percent, the highest rate of the year.
Economists have said that temporary factors, in part, have forced some employers to scale back hiring plans. High gas prices have cut into consumer spending, which fuels 70 percent of economic activity. And supply-chain disruptions stemming from the Japan crisis have slowed U.S. manufacturing production.
The increase in credit card borrowing marked only the second monthly gain since August 2008. Households began borrowing less and saving more when unemployment spiked during the Great Recession. Many have resisted pulling out their credit cards in the two years since the downturn ended. Even with the May increase in credit card debt, this category is down 4.4 percent over the past year and 18.5 percent from its peak in August 2008.
High unemployment, slow wage growth, and a weakening housing market have forced people to be more frugal. Analysts believe the rise in student loans reflects the slumping economy: more people who have lost jobs have returned to school to get training for new careers.
Most analysts had thought the economy would pick up in the second half of this year. Manufacturing output has shown signs of reviving and auto factories in Japan have resumed production. And gas prices have come down a little. The national average for gas on Friday was $3.59 a gallon, down from a peak of nearly $4 in early May.
But a weaker job market, plus the slumping housing market and fears of the fallout from a European debt crisis, could weigh on the economy for the rest of the year.
Peter Newland, an economist at Barclays Capital, said consumer borrowing would show gradual gains in coming months. But he said the modest gains were “unlikely to be a strong driver of consumer spending for some time to come.”
Economists don’t expect consumers to load up on debt the way they did during the housing boom. During that period, Americans felt wealthier and more willing to take on increased debt because of the soaring value of their homes.
The Federal Reserve’s borrowing report includes auto loans, student loans and credit cards. But it excludes mortgages and loans tied to real estate.
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