U.S. Borrowers Reduce Their Overall Loan Debt

Online, April 26, 2010 (Newswire.com) - For the 12th time in the past 13 months, the loan balances of U.S. borrowers declined, according to a report released by the Federal Reserve. According to the report, overall consumer borrowing fell by $11.5 billion in February. Economic analysts had forecasted a slight increase in consumer borrowing instead. The decline is a return to the established pattern of previous months, which was broken by a $10.6 billion upsurge in personal loans and other consumer lending in January.

Of February's total percentage drop of 5.6%, non-revolving loans, including personal loans fell 1.6%. A resurgence in personal consumer lending is seen by many economists as critical to the recovery of the U.S. Economy. Federal Reserve Chairman Ben Bernanke commented that the economy seems to have stabilized and is growing again but threats remain. We are far from being out of the woods," Bernanke told a business audience in Dallas. "Many Americans are still grappling with unemployment or foreclosure or both."

In fact, unemployment remains at historic levels - with young people, usually the backbone of a consumer society - and who are more likely than any other demographic group to apply for personal loans, mortgages and other forms of credit experiencing higher rates of unemployment than ever. The average overall rate of unemployment, at 31 weeks, is at its highest level since the end of World War II and there were a total of 2.3 million unemployed college graduates in March 2010, 1.45 million more than in March 2007, with heavy layoffs in white-collar sectors such as finance. Add to this the fact that consumers who would like to borrow are finding it hard to get credit at banks, which are being pushed by regulators to tighten their lending standards, and it is easy to see why this is having a chilling effect on the confidence of potential borrowers and many are opting to defer personal loans, business loans or other credit options until after the economic recovery strengthens.

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.

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