The amount of credit outstanding plummeted in July by $21.6 billion. That’s a record. It’s the sixth straight month Americans have reduced their borrowing and the 10th straight month that credit card balances have been reduced. Yeah, Americans! But it also means the economy’s turnaround might be even slower.
You can see the data in a report from the Federal Reserve. Here’s the takeaway from creditcards.com:
According to analysts, much of the pullback in revolving debt can be largely traced to an uncertain labor market. “Anyone who becomes unemployed at this point is anticipating a fairly long term of unemployment, so they don’t want to run up their debt right now,” says Sean Maher, an associate economist with Moody’s Economy.com…
Most consumers are “trying to rebuild their cash cushion. They’ve lost value on their homes, so that’s no longer a source of income that consumers can use,” Maher says, adding that he expects the savings rate to continue inching up over the coming months.
The Fed doesn’t draw conclusions about how much of the pullback is from Americans spending less and how much of it comes from lenders tightening. Surely, it’s some of both.
Since consumer spending is two-thirds of GDP, this trend could be a discouraging sign for the economy’s rebound. But considering the debt people built up over the years and the debt the government is currently accumulating, I find it difficult to call this a discouraging sign.
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