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Economy in Brief

U.S. Consumer Credit Outstanding Continues To Fall
by Tom Moeller October 7, 2009

There's been no let-up in the deleveraging of consumer balance sheets. For the seventh consecutive month, the Federal Reserve reported that consumer credit outstanding has fallen. During August, it was down by $12.0, or 4.0% y/y, and the sharper July decline was revised only slightly shallower. The latest was the eleventh since last summer. The magnitude of the cutbacks continues to impress as the y/y change amounted to a record 4.4% drop. Double-digit monthly declines have prevailed all this year. The latest decline was roughly double expectations.

Usage of non-revolving credit (autos & other consumer durables), which accounts for nearly two-thirds of the total, fell $2.1B after the record $16.6B July drop. The 2.4% y/y decline is near the record. Additionally weighing on overall credit has been the tight rein on revolving credit usage. During August, revolving credit outstanding fell a near-record $9.9B for the eleventh consecutive monthly drop. Year-to-year the 7.8% decline is by far the record as consumers left their credit cards in their wallets.ยท With these declines, consumers have been successful in reducing credit outstanding as a percentage of disposable income to 22.6% from its 2005 high of 24.4%. This compares to the low 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 a permanently lower level of credit usage is likely.

Finance companies (-11.5% y/y) and savings institutions (-18.5% y/y) have seen the largest pullbacks in credit extension while commercial banks (+0.1% y/y) and credit unions continue to see positive, though diminished growth. The Federal government and Sallie Mae continued to lend during August by 20.6% y/y which was the strongest growth rate since early 1991.

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.

Predicting Crises, Part II: Did Anything Matter (to Everybody)? from the Federal Reserve Bank of San Francisco can be found here

Consumer Credit Outstanding (m/m Chg, SAAR) August July Y/Y 2008 2007 2006 
Total $-12.0B  $-15.0B -4.0% 1.6% 5.6% 4.1%
  Revolving $-9.9B $-2.4B -7.8% 1.9% 7.8% 5.0%
  Non-revolving $-2.1B $-16.6B -2.4% 1.4% 4.4% 3.6%
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