Americans giving credit cards a break

WASHINGTON Americans cut back on using their credit cards in March, suggesting many were reluctant to take on high-interest debt to make purchases.

Consumer borrowing rose just $8 billion in March from February to a seasonally adjusted $2.81 trillion, the Federal Reserve said Tuesday. It was the smallest increase in eight months.

The gain was driven entirely by more loans to attend school and buy cars. The category that measures those loans increased $9.7 billion to $19.6 trillion.

A measure of credit card debt fell $1.7 billion to $846 billion. That's 17.2 percent below the peak of $1.022 trillion set in July 2008.

Since the recession, people have been more cautious about using credit cards. Economists believe they will stay cautious this year, in part because of an increase in Social Security taxes that has reduced tax-home pay for most Americans.

The credit report doesn't separate auto loans from student loans. But according to quarterly data compiled by the Federal Reserve Bank of New York, student loan debt has been the biggest driver of borrowing since the recession ended in June 2009. Student loans reached $966 billion in last year's fourth quarter, up $10 billion from the third quarter.

Americans increased their spending from January through March at the fastest pace in more than two years. However, they had to trim the pace of their savings to finance the faster spending. Their after-tax income dropped by the largest amount since the final three months of the recession in 2009. Part of the drop in after-tax income reflected the increase in Social Security taxes that took effect on Jan. 1.

A person earning $50,000 a year will have about $1,000 less to spend this year. A household with two highly paid workers will have up to $4,500 less.

Solid hiring could offset some of the drag from the tax increase. The economy added 165,000 jobs in April and hiring in the two previous months was better than previously reported. That helped drive the unemployment rate down to a four-year low of 7.5 percent in April.

The Federal Reserve's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.