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Ahead of the Bell: US consumer credit

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October 7, 2013 06:33 AM EST | AP

WASHINGTON — WASHINGTON (AP) — The Federal Reserve reports how much consumers borrowed in August. The report will be released at 3 p.m. EDT Monday.

BORROWING UP: Economists expect borrowing rose by $11.8 billion in August, according to a survey by FactSet.

STEADY GAINS: In July, Americans increased their borrowing by $10.4 billion to a seasonally adjusted record of $2.85 trillion. They took out more loans to buy cars and attend school but cut back on credit card use for a second straight month.

CONSUMERS CAUTIOUS: The declines in credit card use suggest that consumers remain cautious. That trend could hold back economic growth since consumer spending accounts for 70 percent of economic activity.

In July, the category that includes auto loans and student loans increased $12.3 billion to a record $2 trillion. But a measure consumers' credit card debt fell $1.8 billion to roughly $850 billion. That followed an even larger $3.7 billion decline in the credit card category in June.

That is a pattern that has surfaced in the post-recession economy. Americans are using credit for their most urgent needs, while forgoing debt for discretionary purchases.

The auto and student loan category is up 8.1 percent from a year ago and has risen in every month but one since May 2010. But credit card debt has barely changed in the past year and is nearly 17 percent 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 to their credit cards. Americans may also be hesitant to take on more high-interest debt because of higher Social Security taxes.

At the same time, the weak economy is sending more people back to school. The Federal Reserve's consumer credit report does not separate student loans and auto loans. But 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.

Economists are hoping that as the impact of those higher taxes fades, consumer spending will strengthen in the second half of this year. That forecast is also counting on steady job growth to bolster income growth and support higher spending.

But there are forces still working to dampen growth, including thousands of federal furloughs which depressed income growth in July and the government shutdown that began last week. The shutdown has furloughed 800,000 federal workers without pay, a hit that is likely to dampen consumer spending.

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

A key economic report that has been delayed is the monthly employment report for September, which should have been issued last Friday.

The August employment report showed 169,000 jobs were added that month but 74,000 fewer jobs were added in June and July than previously reported.

The unemployment rate dropped to 7.3 percent in August, the lowest in nearly five years. But the rate fell because more Americans stopped looking for work and were no longer counted as unemployed.

The overall economy grew at an annual rate of 2.5 percent in the April-June quarter. But recent data has economists predicting that growth may be slowing in the July-September quarter to an annual rate of 2 percent.

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.