The frugal consumer era continued in October, but belt-tightening lessened somewhat, as outstanding U.S. consumer credit balances fell by $3.51 billion or at a 1.7% annual rate in October to $2.482 trillion -- the ninth straight monthly credit decline, the U.S. Federal Reserve announced Monday.
Economists surveyed by Bloomberg News had expected October consumer credit to contract by $8.80 billion. Consumer credit is down 3.6% to compared to a year ago. Also, this month the Fed revised monthly consumer credit data back through March. September's total debt outstanding was revised higher by $30.6 billion, to $2.486 trillion from the previously-released $2.456 trillion.
Revolving debt, which includes most credit cards, fell at a 9.3% annual rate or by $6.95 billion to $888.1 billion. However, non-revolving debt, which includes auto loans and personal loans, rose by $3.44 billion or at a 2.6% annual rate to $1.595 trillion.
A perfect storm of factors during the 2007-2009 recession has coalesced, resulting in steadily declining consumer credit balances. Stagnant incomes in many job segments, the loss of more than 7.6 million jobs from the workforce, and reduced credit lines and higher interests rates by banks/card issues have prompted Americans to reduce credit balances over the past year.
Most economists view the declining balances as a positive development, long-term, as Americans had over-consumed in the current decade, resulting in high and in many cases unsustainable credit card balances. Short-term, however, "the great credit card paydown" will lower U.S. GDP growth, as it will constrain consumer spending, which accounts for the bulk of U.S. GDP.
As the October consumer credit data indicated, Americans remain in belt-tightening mode, and paying down credit card balances is a part of that cautious stance. However, the top-line stat decline was less than the consensus estimate, mainly due to the increase in non-revolving credit, including auto loans. Keep in mind that the non-revolving increase is only one month. However, if it continues to rise, that likely would reflect both increased consumer willingness to take on larger loans, such as auto loans, and greater credit availability: Each would be good news for U.S. GDP. But investors should await two or three more months' worth of credit data before they form any conclusions regarding changes in U.S. consumers' cautious spending stance or their level of debt tolerance.
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