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Automobile Sales Stand Alone In Otherwise Frugal U.S. Economy

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CAR SALES
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WASHINGTON -- Consumers borrowed more in January to purchase new cars but were once again frugal with their credit cards, offering a mixed sign of their confidence in the economy.

The Federal Reserve says total borrowing rose at an annual rate of $5 billion in January, or 2.5 percent, the fourth consecutive gain. Strong car sales drove the increase. The category that includes auto loans rose 6.9 percent.

Credit card debt fell 6.4 percent in January, the 28th decline in 29 months. Americans had increased their use of plastic in December for the first time since the financial crisis. But they cut back the following month, even though a Social Security tax cut is giving most households an extra $1,000 to 2,000 this year.

Combined, total consumer credit equaled $2.41 trillion, a slight 0.7 percent above a three-year low hit in September. Consumer borrowing is 6.6 percent below the high hit in July 2008.

Analysts are predicting that consumers will borrow more in the months ahead, responding to the strengthening economy, a brighter outlook for jobs and the tax cut. The government reported Friday that the unemployment rate fell to 8.9 percent in February, the first time it has been below 9 percent in nearly two years.

Households began borrowing less and saving more as they struggled to cope with the deep 2007-2009 recession. People trimmed their spending, which accounts for 70 percent of total economic activity, when the unemployment rate began to rise.

The rise in auto loans marked the sixth consecutive month that this category has increased, reflecting a rebound in auto sales.

Even if economists' forecasts are accurate and borrowing does increase this year, analysts are not predicting that consumers will increase debt the way they had during the housing boom.

During that time, households felt wealthier because of soaring home values. But when home prices fell, they cut back on borrowing. And the trend accelerated after job losses mounted and many people struggled to get their debt under control.

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