Consumers cut back on using credit cards

WASHINGTON (AP) — Americans cut back on using their credit cards in August for a third straight month, a sign that consumers remain cautious about spending.

Consumers increased their borrowing $13.6 billion in August to a seasonally adjusted $3.04 trillion, the Federal Reserve said Monday. That's a record and it followed a gain of $10.4 billion in July.

Once again, the increase in borrowing was driven entirely by auto and student loans. A measure of those loans rose $14.5 billion to $2.19 trillion.

But credit card debt dropped $883 million to roughly $850 billion. The decline could hold back consumer spending, which accounts for roughly 70% of economic growth.

The report highlighted trends that have surfaced in the post-recession economy.

The measure of auto and student loans has risen 8.2% from a year ago and in every month but one since May 2010. But credit card debt is essentially where it was a year ago. And it is 16.9% below its peak hit in July 2008 — seven months after the Great Recession began.

Slow but steady job growth and small wage gains have made many Americans more reluctant to charge goods and services. Consumers may also be hesitant to take on high-interest debt because they are paying higher Social Security taxes this year.

At the same time, the weak economy is persuading more people to attend college. The Federal Reserve Bank of New York quarterly report on consumer credit shows student loan debt has been the biggest driver of borrowing since the Great Recession officially ended in June 2009.

The Fed has just started separating out student loans from auto loans. But that data are two months behind the report. For June, the most recent month available, student loans totaled $1.18 billion while auto loans totaled $841 million. Those figures are not seasonally adjusted.

The economy grew at a modest 2.5% annual rate in the April-June quarter. Most economists expect growth slowed in the July-September quarter to an annual rate of abou! t 2% or less, held back in part by weaker growth in consumer spending.

Analysts had thought that consumers would step up spending and help drive faster growth in the final three months of the year. But a partial government shutdown has now lasted a week and will leave hundreds of thousands of federal workers without paychecks. That is likely to further dampen consumer spending and hold back growth in the October-December quarter.

The consumer credit report is one of the few government reports issued since the shutdown began. The Fed kept operating because it does not depend on budget appropriations from Congress.

The Fed's borrowing report tracks credit card debt, auto loans and student loans but not mortgages, home equity loans or other loans secured by real estate.