American credit card usage declined for the second month in a row in July, while overall borrowing—which includes auto and student loans—grew.  The decline in credit card use suggests consumers remain cautious, a trend that could hold back economic growth.

Overall borrowing increased $10.4 billion in July to a record high of $2.85 trillion, the Federal Reserve said.  That increase came on the heels of a $11.9 billion gain in June.  Mortgages, home equity loans and other loans secured via real estate were not included in those figures.

Auto and student loans grew $12.3 billion in July to a record $2 trillion. But credit card debt $1.8 billion to $850 billion. This is the second straight drop in a row for the category, as June saw credit card debt fall by $3.7 billion.

Slow job growth and wage increases have caused many Americans to be more reluctant to accrue debt for discretionary purchases, using credit only for more urgent needs.  That reluctance may be holding back consumer spending—a category that accounts for 70 % of economic activity.  Higher Social Security taxes and uncertainty about the long-term stability of the economy may also be fueling consumers’ hesitance to use high-interest credit cards more than necessary.

Economists hold out hope that consumer spending will strengthen in the second half of the year, though.  This promising forecast is dependant on steady job growth—and its attendant income growth—to support higher spending as the economy moves into the holiday season.

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