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Economy in Brief

U.S. Credit Borrowing Fell Further During 3Q
by Tom Moeller December 11, 2008

After the sharp decline during the second quarter, the U.S. household and business sectors pulled back their borrowing further during 3Q. It was only the Federal government that kept the credit houses in business. Nongovernment liabilities grew just 0.2% last quarter. A record low that pulled the y/y growth back to 4.3%, a rate not seen in fifteen years.

Borrowing by the household sector, like during 2Q, nearly evaporated as it posted a 0.1% uptick. Consumer credit did rise 1.4% (3.5% y/y) but that was offset by a 0.4% decline (+2.4% y/y) in mortgage borrowing. Households' obligations on home mortgages in fact declined by an unheard of $61B, or 0.5% (+1.2% y/y) after the $9B 2Q shortfall. Consumers' other credit liabilities rose $35B (3.5% y/y). Growth in bank loans remained fairly steady at 16% y/y).

As economic recession developed and the war in the Middle East continued, the federal government's debt obligations surged an unprecedented $527B or by 15.3% y/y.

Credit market debt owed by the financial sector remained strong and steady at a 7% growth rate. Liabilities at commercial banks surged 23.4% y/y while savings institutions liabilities fell by 8.1%.

Asset price implosion also was in evidence in the 3Q figures. The value of equity market shares fell by nearly $1 trillion (-27.3% y/y) and mutual fund share values fell $597B or 17.5% y/y. Pension fund reserves additionally were hit to the tune of $600B or 12.5% y/y).

As a result of the implosion in equity market and home prices, the net worth of the U.S. household sector last quarter deteriorated by nearly three trillion dollars from the prior quarter's level. The dollar level of household sector financial assets fell $2.1 trillion (-9.6% y/y) and tangible asset values fell $0.5 trillion (-6.6% y/y).That pulled the net-wealth lost since the year-ago peak to $7.1 trillion, or 11.1%.

Flow of Funds (Y/Y % Chg.) % of Total 3Q '08 2Q'08 2007 2006 2005
Total Credit Market Debt Outstanding -- 6.2 7.6 10.1 9.9 9.2
    Federal Government 11% 15.3 7.0 4.9 3.9 7.0
    Households 28% 2.2 4.0 6.8 10.2 11.1
    Nonfinancial Corporate Business 13% 6.9 9.4 13.3 8.5 6.4
    Nonfarm, NonCorporate Business 7% 7.6 11.3 13.1 14.7 13.6
  Financial Sectors 32% 7.3 9.8 13.2 10.0 8.9
Net Worth: Households & Nonprofit Organizations (Trillions) -- $56.540 $59.354 $62.170 $61.591 $57.385
  Tangible Assets: Households -- $25.842 $26.381 $27.092 $28.061 $27.125
   Financial Assets: Households -- $45.271 $47.419 $49.457 $46.984 $42.441
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