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Economy in Brief

Consumer Credit Outstanding Falls For An Unprecedented Sixth Straight Month

by Tom Moeller September 09, 2009

The deteriorating job market and uncertain prospects for improvement, plus over-leverage from past spending, has prompted an end to the growth in consumer credit. The Federal Reserve reported late-yesterday that consumer credit outstanding fell during July for the sixth straight month and for the tenth month since last summer. Perhaps more impressive, however, is the magnitude of the cutbacks. The $21.5B July decline was the record for any one month and double-digit monthly declines have prevailed all this year. On a percentage basis the 4.2% y/y decline is a record.

Usage of non-revolving credit (autos & other consumer durables), which accounts for nearly two-thirds of the total, fell a record $15.4B after a $10.7B June drop. Except for the mid-1970s, these declines were enough to pull the retrenchment to near the record for a two-month period in dollar terms as well as on a percentage basis. The 2.6% y/y decline is near the record. Additionally weighing on overall credit has been the tight rein on revolving credit usage. During July, revolving credit outstanding fell $6.1B for the tenth consecutive monthly drop. In percentage terms the decline pulled the outstanding total down a record 7.1%.

Despite these huge declines, there arguably is more to come. Consumers have been successful in reducing credit outstanding as a percentage of disposable income to 22.7% from its 2005 high of 24.4%. However, these levels compare to the lows near 16% in the early-1990s. Now that the "shop-till-you-drop" mantra has been diffused by the aging population of the U.S., a return to some lower level of credit usage is likely.

These figures are the major input to the Fed's quarterly Flow of Funds accounts for the household sector.

Credit data are available in Haver's USECON database.  The Flow of Funds data are in Haver's FFUNDS database.

The latest Beige Book from the U.S. Federal Reserve Board can be found here.

The Credit Crisis and Cycle-Proof Regulation from the Federal Reserve Bank of St. Louis is available here.

Consumer Credit Outstanding (m/m Chg, SAAR) July June Y/Y 2008 2007 2006 
Total $-21.5B  $-15.6B -4.2% 1.6% 5.6% 4.1%
  Revolving $-6.1B $-4.9B -7.0% 1.9% 7.8% 5.0%
  Non-revolving $-15.4B $-10.7B -2.6% 1.4% 4.4% 3.6%
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