US consumers reduced their borrowing for the seventh straight month in August, as households worked to pay off debt and banks reduced credit card limits.
Americans are saving more and borrowing less as widespred job losses, stagnant wages and dwindling home values have spureed a move to greater frugality. While that's a positive trend in the long run, economists say, it can weaken the fledgling recovery as consumer spending powers about 70 per cent of the economy.
The Federal Reserve said on Wednesday that total outstanding consumer debt fell in August by $12 billion (Bt400 billion), a 5.8-per-cent annual rate. Wall Street economist expected a $10 billion decline.
That follows a downwardly revised drop of $19 billion, or 9.1 per cent, in July, the largest decline in dollar terms on records dating from 1943. July's decrease was the steepest percentage drop since a 16.3-per-cent decline in June 1975.
"Consumers are clearly becoming much more conservative about their spending habits [and] paying down debts," said Zach Pandl, an economist at Nomura Securities. "This is likely to continue."
The declines reflect both a drop in demand for credit by consumers, as well as tighter standards among banks and other lenders.
Total outstanding consumer credit is now $2.46 trillion, down about 4.6 per cent from its peak in July. The Fed's report covers credit cards, store cards, auto and other personal loans. It doesn't include mortgages or other real-estate-related debt.
The retrenchment in August occurred even as consumer spending increased 1.3 per cent, according to a report last week from the Commerce Department. That suggests consumers are increasingly buying with cash rather than credit, Pandl said.
The Cash for Clunkers auto rebate programme helped boost personal spending in August. Economists noted that auto loans and other non-revolving debt dropped only 1.6 per cent that month, according to the Fed, compared with a 12.6-per-cent fall in July.
Credit card debt, meanwhile, fell 13.1 per cent, its steepest drop since February.
That may also reflect cuts in card limits. A report earlier this year by FICO, which produces the most widely known credit scores, found that companies slashed limits for an estimated 58 million card holders in the 12 months ended in April.
Consumers also are likely to restrain spending as long as jobs remain scares. The Labour Department reported last week that the unemployment rate rose to 9.8 per cent in September, the highest in 26 years. Many economists believe the rate will peak above 10 per cent sometime next year.
Retailers already are bracing for another meager holiday season. The National Retail Federation (NRF) said that it expects sales during November and December to fall 1 per clent from last year. While that's not as steep a drop as in 2008, last year's holiday sales saw the worst annual drop on record dating to 1967.
The NRF also expects retail sales for all of 2009 to fall 3 per cent.
AT A GLANCE
Americans are saving more and borrowing less as wide-spread job losses, stagnant wages and dwindling home values have spurred a move to greater frugality.
The Federal Reserve said on Wednesday that total outstanding consumer debt fell in August by $12 billion (Bt400 billion), a 5.8-per-cent annual rate. Wall Street economists expected a $10 billion decline.
The Labour Department reported last week that the unemployment rate rose to 9.8 per cent in September, the highest in 26 years. Many economists believe the rate will peak above 10 per cent sometime next year.
Thursday, October 8, 2009
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