SalesConsumer borrowing plunged more than expected in February as Americans cut back their use of credit cards by a record amount.

The Federal Reserve said Tuesday that consumer borrowing dropped at an annual rate of $7.48 billion in February, or 3.5 percent, from January. Wall Street economists expected borrowing to slide by only $1 billion, according to a survey by Thomson Reuters.

The decline was led by a record drop in borrowing on credit cards, which fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms since federal records began in 1968, and the steepest percentage fall since 1978.

“Consumers don’t want to borrow as much, they want to build up their savings,” said Zach Pandl, an economist at Nomura Securities International. “People are adjusting to new spending habits.”

Besides credit cards, the Fed’s report also covers auto and other personal loans. It doesn’t include mortgages or other real-estate related debt.

Auto and other loans in February rose at a slight $313 million annual rate, or 0.23 percent, after increasing by an upwardly revised 4.6 percent in January.

February’s overall drop in consumer credit followed an increase in January that was revised even higher. Consumer borrowing rose at an $8.1 billion annual rate in the first month of the year. That was much more than the original $1.76 billion estimate and followed three straight declines.

Consumer spending accounts for about 70 percent of U.S. economic activity. It fell by 4.3 percent in the final quarter of 2008, the largest drop in more than 28 years. That decline contributed to the economy’s steep 6.3 percent contraction during that period.

Pandl expects consumer spending rose 1 percent in the January-March period. Many economists expect consumer spending to increase modestly this year, but they expect less of that spending to be done with plastic.

The Commerce Department said last month that consumer spending rose 0.2 percent in February, following a 1 percent increase in January that reversed six months of declines.

While encouraged by the increases, economists believe shoppers are still cautious. They expect retailers on Thursday will report flat or lower sales in March, compared with last year. A wide range of retail chains, including Wal-Mart Stores Inc. and TJX Cos., are expected to report results.

Michael P. Niemira, chief economist at the International Council of Shopping Centers, predicts Thursday’s tally will be between a 1 percent decline and flat. Analysts polled by Thomson Reuters predict sales at stores open at least a year fell 1 percent last month.

Copyright 2009 The Associated Press.