Car purchases fuel borrowing

WASHINGTON – Consumers borrowed more in January to purchase new cars but were once again frugal with their credit cards, offering a mixed sign of their confidence in the economy.

Borrowing rose 2.5 percent, or by $5 billion, the Federal Reserve said Monday. It was the fourth consecutive monthly gain and it increased total consumer debt to $2.41 trillion.

Strong car sales drove the increase. The category that includes auto loans rose 6.9 percent.

But credit card debt fell 6.4 percent in January – the 28th decline in 29 months – to the lowest level since September 2004. Americans had increased their use of plastic in December for the first time since the financial crisis. But they cut back the following month, even though a Social Security tax cut is giving most households an extra $1,000 to 2,000 this year.

“People are still pretty cautious about using their credit cards,” said David Wyss, chief economist at Standard & Poor’s in New York. “We are coming out of a deep recession in which a lot of people got caught with too much debt.”

Consumer debt is 0.7 percent above a three-year low hit in September. It is 6.6 percent below the peak hit in July 2008.

Analysts are predicting that consumers will borrow more in the months ahead, responding to the strengthening economy, a brighter outlook for jobs and the tax cut. But they said the increases will likely be gradual.

Michael Gapen, senior U.S. economist at Barclays Capital, said he expects consumer spending to grow as much as 3.5 percent in 2011, about double last year’s gain.