U.S. consumer borrowing drops

U.S. consumer borrowing fell in March for the first time in more than eight years, with the category covering credit cards dropping by the largest amount in over three decades, the Federal Reserve reported Thursday.

The Fed’s report is the latest sign of how the coronavirus pandemic is disrupting the U.S. economy.

Consumer borrowing declined by $12 billion in March, the first time overall debt has fallen since August 2011, according to the central bank. The decline in percentage terms was 3.4 per cent.

Borrowing in the category that covers credit cards dropped by $28.2 billion or 30.9 per cent, the biggest percentage decline since January 1989.

Borrowing in the category that covers auto loans and student loans was up $16.1 billion or 6.2 per cent.

Changes in consumer credit are closely watched for signals about how willing households are to take on more debt to finance their spending, which accounts for 70 per cent of economic activity.

Economists believe that, given the millions of lost jobs and the steep drop in economic activity due to the efforts to contain the virus, there will be more weakness in consumer spending in coming months.

The overall economy shrank at an annual rate of 4.8 per cent in the first quarter, the biggest decline in a decade as the pandemic shutdowns began in the middle of March. Consumer spending fell at a rate of 7.6 per cent in the first quarter, the steepest decline since 1980.