Consumer borrowing increased at the slowest pace in five months in September, coming in at half of what most economists expected. The slowed growth in credit card debt and car loans came in at just 1.8%, which compares to 9.3% in August. Total consumer debt rose by $3.75 billion in September, which is far lower than the $15.41 billion gain in August.

Why is consumer borrowing down? Well, a recent Fed survey found that banks tightened their lending standards following a severe credit crunch in August in the wake of rising defaults on subprime mortgages. Now that housing sales have slowed considerably, consumers are having a hard time finding lenders willing to borrow against their houses due to declining values.

This may seem like good news, but there is a downside. A slowdown in consumer borrowing will likely also lower consumer spending, which accounts for nearly 2/3 of total economic activity. A slowdown in spending within our economy could compound problems we are already facing with troubled companies hurt by borrowing restrictions themselves. This will lead to lower earnings, increased layoffs, and higher unemployment.

In the end, everything economic happens in cycles and this is simply the trough of one of the cycles. Many economists believe that these events may lead to a recession during the next couple of years following the boom that we have enjoyed since around 2005.