The 'frugal consumer' era continued in November. Outstanding U.S. consumer debt fell by a record $17.49 billion in the month, to $2.46 trillion. This marks the 10th straight monthly credit decline, the U.S. Federal Reserve announced Friday. In a Bloomberg News survey, economists had expected November consumer credit to contract by $5.5 billion.In November, total outstanding consumer credit, including revolving and non-revolving credit, declined to $2.464 trillion, compared to $2.482 trillion in October, and $2.564 trillion in November 2008, the Fed said.

Revolving debt, which includes most credit cards, fell at a 18.5% annual rate or by $13.7 billion to $874.0 billion. Non-revolving debt, which includes auto loans and personal loans, fell at a 2.9% annual rate or by $3.8 billion to $1.590 trillion.

A Grim Marco Environment

A perfect storm of factors coalesced during the 2007-2009 recession, 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 over-consumed in the previous 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.

Economic Analysis

As the November consumer credit data indicates, Americans remain in belt-tightening mode, and paying down credit card balances is a part of that cautious stance. Basically, Americans have been paying down debt since the onset of acute stage of the financial crisis, which began in the in the fall of 2008.

The next major unresolved question concerns whether consumer spending, which historically accounts for 60-65% of U.S. GDP, will occupy as large a space in the U.S. economy. If the current 'frugal consumer' trend endures, it's highly likely that consumption as a percent of GDP will decrease. Further, some economic schools argue that lower consumption level implies a lower, structural GDP growth rate for the United States. Still, the 'frugal consumer' trend is relatively new. Let's await another quarter of consumer credit data before declaring an end to the traditional consumer-based U.S. economy and the days of robust GDP growth.

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