A Resurgence of U.S Borrowers Appetite For Loans Eagerly Awaited by Economists

Online, May 3, 2010 (Newswire.com) - Many economists have become concerned that unless consumer borrowing stabilizes, it could derail the recovery because it will lower consumer demand for goods and services in the larger economy. Demand for goods and services by individual consumers accounts for 70 percent of total economic activity. For the last year, the rate of individual and business borrowing has been effectively in free-fall. For 12 of the last thirteen months, consumer and business borrowing declined, according to a report released by the U.S. Federal Reserve. Overall consumer borrowing fell by $11.5 billion alone in February of this year.

The $11.5 billion decline represents a 5.6% fall in consumer and business sector borrowing. A resurgence in personal consumer lending is seen by many economists as critical to the recovery of the U.S. Economy. Potential reasons for the decline include the high rate of unemployment, uneasiness over the recent financial crisis and the increased scrutiny of banks and other lenders by regulators who wish to prevent another financial debacle. If consumers are finding it hard to get credit at banks (which are being pushed by regulators to tighten their lending standards), it is easy to see why potential borrowers are opting to defer unsecured loans or other credit options until after the economic recovery strengthens.

Although a decline in consumer credit could mean Americans are trying to knock away their debt, it could also mean banks are having a hard time getting people to make good on their loans. Defaults also make up the credit picture, and it is possible that write-offs of bad loans may have accounted for some of the decline. If consumers paying off debt is the main reason that borrowing levels fell, it could present a more rosy loan atmosphere for the country as a whole. As banks get their money back from previous loans, they may be more inclined to grant new personal loans and business loans.

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