Consumer borrowing slows in February

April 7, 2008 1:57:42 PM PDT
Consumers, battered by a credit crunch and prolonged housing slump, significantly slowed their pace of borrowing in February. The Federal Reserve reported Monday that consumer borrowing rose at an annual rate of 2.4 percent in February, just half of the 4.9 percent increase in January.

The slowdown reflected much weaker demand for auto loans and other type of non-revolving credit, which rose at a rate of 0.4 percent in February, much lower than the 3.6 percent growth rate in January. Credit card debt rose at a 5.9 percent rate.

Consumers have been moving to put more of their purchases on their credit cards as banks have tightened up on lending standards for home equity loans in response to the deepening credit crisis.

The price of homes has fallen sharply in many parts of the country. The 2.4 percent overall rate of increase was the slowest since debt growth had slowed to a 1 percent rate in December.

The overall increase in credit of $5.16 billion, which was slightly below expectations, pushed total consumer credit to a record $2.539 trillion.

The Fed's measure of consumer borrowing does not include any debt secured by real estate such as mortgages or home equity loans.

The economy has slowed dramatically in recent months under the impact of a slump in housing, a severe credit crisis that hit in August and rising unemployment. The government reported Friday that unemployment jumped to 5.1 percent in March as businesses slashed another 80,000 jobs.

While many economists believe the country has slipped into a recession, the Bush administration says that growth should revive starting this summer when 130 million households start spending their economic stimulus checks.

Meeting Monday at the White House with owners of small and medium-sized businesses, President Bush said the economy was going through a "rough time" but he was confident things would turn around. He urged lawmakers contemplating passage of a second economic stimulus measure to allow more time for the first $168 billion package to work.

"Give this one a chance to work," Bush said during the meeting with business executives including those in the orchard, meat packing and large equipment industries.

He said experts were telling him that the stimulus package would boost overall economic growth by between 1 percent to 1.5 percent later this year.

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Associated Press writer Deb Riechmann contributed to this report.

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