Consumer credit drops againThe frugal consumer trend continued in late summer, as Americans' use of credit plunged again in August. Total consumer debt fell by $3.3 billion, or a 1.4% annual rate, the U.S. Federal Reserve announced Tuesday. It was the seventh straight monthly decline in total consumer debt, and the 21st drop in the past 23 months.

A Bloomberg survey had expected the figure to fall by $4 billion in August after declining a revised $4.1 billion in July, larger than the initially estimated $3.6 billion. Consumer credit fell $1.8 billion in June and $2.5 billion in May.

In the past 12 months, total consumer debt has fallen 3.1% to $2.414 trillion from $2.491 trillion in August 2009. That's slightly less than the 3.2% year-over-year rate of decline recorded in July.

A Long-Term Positive

Once again in August, all of the nation's consumer debt reduction occurred in revolving debt, which includes most credit credits. Revolving debt fell by $5 billion, or an annualized rate of 0.6%, to $822.2 billion. It was also the 24th consecutive monthly decline for credit card debt. Nonrevolving debt, which includes most auto loans, personal loans and student loans, increased by $1.6 billion, or at annual rate of 0.1%, to $1.592 trillion.

The 2007-2009 recession led to the steadily declining consumer credit balances. Stagnant incomes in many job segments, the loss of more than 8 million jobs, reduced credit lines and higher interests rates by banks/card issuers have prompted Americans to trim credit balances over the past two years.

Most economists view this as a positive development in the long term because Americans overconsumed 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 because it will constrain consumer spending, which accounts for the bulk of U.S. GDP.

Americans are not only paying down revolving debt, they're weeding out frivolous consumption. If this trend continues, it will have implications for the nation's ability to lower both its high unemployment rate and for a sustained increase in corporate earnings. If no other dimension of the economy -- exports, for example -- makes up for reduced consumer spending, it'll be difficult for the U.S. economy to return to a robust, 2.5%-plus growth rate.

Increase your money and finance knowledge from home

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

Building Credit from Scratch

Start building

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

I use a credit card that pays me points/money for all purchases, and I always pay off the balance each month. I will never pay a Credit Card company a fee, I like them to pay me!

October 08 2010 at 10:48 AM Report abuse +1 rate up rate down Reply

They raised my rates on every last card I held. One went to 28.99%. My payment reccord was spotless but they still jacked me up. I paid off every last one and will never carry a balance again. The banks did this to themselves.

October 08 2010 at 8:48 AM Report abuse +2 rate up rate down Reply
Robert & Lisa

We are in deep trouble. People in general have lost their good sense. Big government is never good for the average citizen. Mexico, North Korea, Iran, Cuba... Have we not the good sense to see what our new reality is becoming under the Demoncrat rule?

October 08 2010 at 4:55 AM Report abuse +2 rate up rate down Reply

i hope all americans can cut them cards up make the bank pay big they will start looseing billions if we can keep cuting them cards up .

October 07 2010 at 10:05 PM Report abuse +4 rate up rate down Reply

People are trying to save and conserve whatever they can. They are afraid as private businesses are from the USA Govy. The public sees a fear never known in recent history. The fear is : lack of confidence in the Obamma admin, actually seeing the pain and suffering of fellow citizens and the lies perpetuated to keep the insanity going. By the way, the lies are not just from Obamma, but from Oprah, Katy, Matt, the View and all the other numb nutts in the media.

October 07 2010 at 8:19 PM Report abuse +5 rate up rate down Reply

The reporter Joseph Lazarro who wrote the article could be overlooking an important fact or two. Personal Bankruptcy filings are up 13% over last year. Could be consumers are getting out of credit card debt by filing Bankruptcy. It could also be that due to all of their loses___The credit card companies are placing stricter limits on credit and also 'requiring' the higher minimum repayments each month now.

October 07 2010 at 7:25 PM Report abuse +2 rate up rate down Reply

Somehow, I just don't feel sorry for the credit card companies. Never been late, always paid more then the amount due. Raised my rate to just under 23%. Paid off that card and use it only occasionally to keep them happy, but always pay it off next billing cycle. Use the credit union card at 9.9%. That too gets paid off. They shouldn't have ticked so many card holders off.

October 07 2010 at 6:28 PM Report abuse +2 rate up rate down Reply