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Consumer borrowing rises in April

Consumer borrowing increased slightly in April, a sign that Americans may have more faith in the economic recovery.
/ Source: The Associated Press

Consumer borrowing increased slightly in April, a sign that Americans may have more faith in the economic recovery.

Borrowing rose by $954.8 million in April, the Federal Reserve said Monday. But the government revised away a gain it had originally reported for March. Instead, it reported that credit fell a sharp $5.44 billion during that month.

The April increase, if it stands, would be only the second gain in the past 15 months. Economists are hoping that households will soon feel confident enough to borrow more and help sustain the recovery.

Consumer credit also rose in January. Beyond the January and April gains, consumer credit has posted a string of declines that started in February 2009. Households have cut back on their spending to repair their battered balance sheets.

The April gain represented a 0.5 percent increase.

The strength in April reflected a 7.1 percent rise in nonrevolving credit, the category that includes auto loans. Auto spending has been boosted in recent months by incentives offered by automakers.

Revolving debt, which includes credit card borrowing, plunged 12 percent. That was the 19th consecutive decline in this category.

Tighter credit conditions imposed by many banks could constrain the rebound.

For years, economists worried about the low personal savings rate among Americans. But now they fear less borrowing could hamper overall growth. Consumer spending accounts for 70 percent of total economic activity.

Economists noted that the small increase in credit in April came after significant downward revisions to borrowing in the previous three months, indicating that high unemployment and tight credit standards were still restraining consumer credit.

"The uneven monthly pattern of consumer debt is further indication that improvements will be very gradual," said Gregory Daco, an economist at IHS Global Insight. "Continued slack in the labor market and slow wage increases are forcing households to remain cautious and prefer cash over credit."

Joshua Shapiro, chief U.S. economist at MFR Inc. in New York, said that the magnitude of the borrowing slowdown was highlighted by the fact that since consumer credit peaked in July 2008, it has fallen by $142 billion. He said households continue to struggle "to put their balance sheets in order after the credit and asset bubbles popped."

The 0.5 percent rise in credit in April lifted total borrowing to $2.44 trillion, still down 4.8 percent from a year ago.

The Fed's credit card report covers credit card debt, auto loans and other debt not secured by real estate.