Consumers again cut back on use of credit cards

September 9, 2010 at 12:00a.m.

Associated Press

WASHINGTON

Consumer borrowing fell again in July as households cut back on their credit-card use for a 23rd-consecutive month, adding more drag on an economy struggling to mount a sustained rebound.

Borrowing dropped at an annual rate of $3.6 billion in July, the Federal Reserve reported Wednesday. That marked the 17th drop in credit in the past 18 months.

Americans did boost borrowing for auto loans in July, but this gain was offset by further reductions in the category that includes credit cards.

The latest drop in overall borrowing was slightly higher than economists’ expectations and followed a $1.02 billion decline in June, which was revised from an initial estimate that total credit had dropped by $1.3 billion that month.

The July decrease represented a 1.8 percent decline in percentage terms and followed a 0.5 percent drop in June. The only increase in credit that has occurred since January 2009 was a small 1 percent rise in January of this year.

Borrowing in the category that includes auto loans rose 0.6 percent in July after gains of 3.2 percent in June and 1.2 percent in May. The three monthly increases reflected a revival of auto sales this summer after automakers endured slumping sales during the recession.

Borrowing on credit cards fell by 6.3 percent in July after a bigger 7.5 percent June decline. This category has fallen for a record 23 consecutive months as Americans have struggled to repair their household finances after the worst recession since the 1930s.

Households are borrowing less and saving more, and that has acted as a drag on the overall economy by lowering consumer spending, which accounts for 70 percent of total economic activity.

Economists expect households will continue to cut back on borrowing as long as incomes and employment don’t show significant improvements.

The Fed’s credit report covers credit-card debt, auto loans and other debt not secured by real estate. It does not cover home mortgages or home-equity lines of credit.