Advertisement
  1. Archive

CONSUMERS' DEBT REDUCTION SEEN AS THREAT TO RECOVERY

WASHINGTON - U.S. consumers sharply reduced their debt in July, posing another threat to the nascent recovery, the Federal Reserve reported Tuesday.

Total seasonally adjusted consumer debt fell $21.55 billion, or at a 10.4 percent annual rate, in July to $2.47 trillion.

The drop in credit in July is rewriting the record books.

This is the sixth straight monthly drop in consumer credit - the longest consecutive string of declines in credit since the second half of 1991.

Consumers have retrenched since the financial crisis hit with full force last September. Credit has fallen in every month except January.

In percentage terms, the drop in credit is the biggest since June 1975.

And on a year-over-year basis, credit is down 4.3 percent, the biggest drop since June 1944.

The retrenchment was much more than expected. Economists surveyed by MarketWatch expected consumer credit to decline by $4.3 billion.

Economists said shrinking credit might strangle the recovery.

"There is no real way to put a positive spin on these data. Credit is still shrinking and that is going to have an impact on consumption," wrote Charmaine Buskas, senior economics strategist at TD Securities, in a note to clients.

"Without the smooth functioning of credit markets, the recovery may stall," Buskas said.

Fed data has shown that the value of both household net assets and net worth has plunged by about $12 trillion from the peak in mid 2007, said Josh Shapiro, chief U.S. economist at MFR Inc.

The retrenchment of credit "is still in its early days," Shapiro said.

YOU MIGHT ALSO LIKE

Advertisement
Advertisement