Consumer credit falls at fastest pace in 18 years
WASHINGTON -- Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades.
The Federal Reserve said Thursday that consumer borrowing dropped 5.2% in March, the biggest decline since an 8.1% fall in December 1990.
In dollar terms, consumer borrowing plunged $11.1 billion. That's the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected.
The borrowing category that includes credit cards dropped 6.8% in March after a 12.1% plunge in February. The category that includes auto loans fell 4.2% after rising by 1.2% in February.
The Commerce Department last week said that the personal savings rate edged up to 4.2% in March, marking the first time in a decade that the savings rate has been above 4% for three straight months.
Households have been spending less and saving more as they seek to replenish nest eggs in the face of massive job layoffs.
Consumer spending, which accounts for about 70% of total economic activity, fell 0.2% in March, ending an otherwise strong quarter. Consumer spending grew at an annualized rate of 2.2% in the first quarter, according to government data.
And while economists believe shoppers are still cautious, many retailers on Thursday reported April sales results that beat expectations.
Still, the overall economy was contracting at an annual rate of 6.1% in the first three months of this year following a 6.3% fall in the final three months of last year. That marked the worst six-month performance in a half-century.
Economists are counting on President Obama's $787 billion stimulus program with increased government spending and tax cuts for individuals and businesses to boost growth in coming months and get the country out of the recession.
Many analysts believe the economy is declining in the current quarter by around 3%, and could turn slightly positive in the third quarter.
