Consumer Burrowing Plunged At Fastest Pace In 18 Years

Consumer borrowing plunged in March at the fastest pace in 18 years as Americans put away their credit cards and hoarded cash amid the worst recession in decades.

The Federal Reserve said Thursday that consumer borrowing dropped 5.2 percent in March, the biggest decline since an 8.1 percent fall in December 1990.

In dollar terms, consumer borrowing plunged by $11.1 billion. That’s the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected.

The borrowing category that includes credit cards dropped 6.8 percent in March after a 12.1 percent plunge in February. The category that includes auto loans fell 4.2 percent after rising by 1.2 percent in February.

Is that good news or bad news for the economy ? Short term NO, but long term YES.

Goods news in long term, since savings rate goes up and Americans build true wealth rather than living on credit day in and day out.

Bad news in short term, since company profits go down, which leads to job cuts and cutting expenses. It is definitely bad news for credit card companies like MasterCard (MA) and Visa (V) since their profits take a hit. Car companies also take a hit too with auto loans down.

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