Consumer credit sinks as jobless rate jumps to a 25-year high

Consumers in the U.S. are saving more and spending less amid the recession. According to the Federal Reserve, borrowing by consumers dropped by $15.7 billion in April, at an annual rate of 7.4%. This follows a 7.8% drop in March. These are the largest declines since December 1990 when consumer credit dropped 8.1%. Credit card debt declined at an annual rate of 11% and auto loans and other non-revolving credit fell at an annual rate of 5.3% in April. Personal savings by Americans rose to 5.7% in April, the highest since February 1995. Last week, the Labor Department announced that the jobless rate jumped to a 25-year high of 9.4% in May. According to the Labor Department, employers in May reduced a net total of 345,000 jobs, the fewest since September last year and far less than the forecast of economists. "It keeps hopes alive for a full recovery in the U.S. economy by the second half. It's a step in the right direction," said John Canally, investment strategist and economist
for LPL Financial. Hopes apart, economists do not expect to see a rise in consumer spending and credit as long as the unemployment rate keeps rising.