Consumers and Banks Continue to Reign in the Credit
Oct 7th, 2009 @ 7:06 PM by Amber Nelson
For the seventh month in a row, outstanding consumer credit declined in August, according to a recent Federal Reserve report. Total credit debt dropped 5.8 percent to $2.463 trillion dollars , signaling continued caution on the part of consumers and perhaps continued reluctance on the part of lenders to make credit available. The seven month declining streak is a record not seen since 1991 and consumer credit has never contracted for eight straight months in the history of the survey, dating back to 1943.
Revolving credit, including credit card debt, fell to $899.4 billion in August, a 13.1 percent drop from the previous year, while non-revolving credit (i.e. car and student loans) dipped 1.6 percent in the past year to $1.563 trillion.
Apparently American consumers are being cautious with their money. And – surprise, surprise – some economists think that might actually be a good thing in the long run for the economy, with people saving up and protecting their credit scores.
Of course, 70 percent of the economy is based on consumer spending and if people aren’t spending, more jobs will be lost, or at least few new jobs will be created, creating quite a dilemma in the short term.
Unemployment is up to 9.8 percent and personal income is down 2.6 percent over last year. Still, most analysts are predicting that the economy did in fact grow in 2009’s third quarter instead of shrinking. It is hard to say, however, how quickly the economy will pull out of the recession without a major increase in consumer spending soon.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.