Consumers Choose Cash Again

For the sixth straight month, the amount of consumer credit debt decreased in July. Credit, including things like credit cards and auto loans, fell 1.8 percent or $1.02 billion, down to a total of $3.63 billion in outstanding debt, according to the Federal Reserve. This also marks the 17th decrease in 18 months.

The same old issues seem to be responsible for the drop.

“On the demand side, households continue to show signs of caution as they face high unemployment, minimal wage increases and poor housing conditions,” said Gregory Daco, senior U.S. economist at IHS Global Insight as quoted in an Associated Press article. “On the supply side, tight lending remains the norm.”

Credit card spending was especially low in July, with a 6.3 percent or $4.39 billion decline. Credit card debt has now been falling for 23 consecutive months.

Auto loan debt actually rose, by just 0.6 percent however, after rising 3.2 percent in June and 1.2 percent in May. July’s gains were obviously not enough to offset the deep declines in other credit categories.

The most unnerving point of this news is this line from the AP article:

Households are borrowing less and saving more and that has acted as a drag on the overall economy by lowering consumer spending, which accounts for 70 percent of total economic activity.

Does anyone else feel great frustration that what is good for personal finances (borrowing less and saving more) can apparently be bad for the economy as a whole? That just doesn’t seem like it should add up!