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Nov-07-2009US Consumer Credit Fell in September, Eighth Drop(topic overview)
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The Federal Reserve announced that consumer debt fell by $14.8 billion during the month, significantly more than the $10 billion economists forecast. September consumer credit outstanding fell at a 7.19% annual rate to $2.46 trillion, its eight consecutive monthly decline. The concern, of course, is that the more consumers save, the less they are spending -- then again, pent-up demand, money in the bank and freed-up credit cards could ultimately help spur sales for the holidays. -- Reported by Jeanine Poggi in New York Follow TheStreet.com on Twitter and become a fan on Facebook. [1] The analysts forecasted a U.S. consumer credit decrease of $10 billion, which is $4.8 billion less than the actual drop. The overwhelming decrease in consumer credit is a glaring indication that American citizens continue to feel reluctant about spending and that they prefer to reduce their debt as opposed to digging themselves an even deeper hole. According to Forbes.com, our nation's total consumer credit has reached its lowest total since June of 2007. Despite the belief that the economy is no longer in a recession, the consumer credit was largely impacted by the fact that banks have tightened their access to loans. With our nation's unemployment rate at its highest percentage in over a quarter-century, experts are predicting that the economic recovery is going to be an incredibly lengthy and drawn-out process. Chief financial economist Chris Rupkey provided a comment in response to the drastic consumer credit drop, saying, 'This is truly an ugly report in what it portends for consumer spending.[2] While the economy resumed growing again in the third quarter, possibly ending the most brutal recession in 70 years, there are concerns that sluggish consumer spending and a weak labor market could hobble the recovery. The pace of job losses has slowed markedly from early this year, but the unemployment rate jumped a 26-1/2-year high of 10.2 percent in October. Nonrevolving credit, which includes closed-end loans for big-ticket items such as cars, boats, college education and holidays, fell $4.87 billion, or at a 3.72 percent annual rate, to $1.57 trillion.[3]
The September numbers mark eight consecutive months of decline, the longest losing streak since the series started in 1943. Nonrevolving credit, which includes closed-end loans for big-ticket items such as cars, boats, college education and holidays, fell $4.87 billion, or at a 3.72 percent annual rate, to $1.57 trillion.[4]
Much of September's debt decline was seen in revolving credit, such as credit card borrowing. This type of debt fell by $9.9 bln, or at an annual rate of 13.26%. Revolving credit has fallen for 12 consecutive months, the longest string of declines for this series since January 1968. A smaller decline yet still substantial decline was seen in non-revolving credit, such as loans for automobiles and other big-ticket items excluding real estate. This type of debt fell by $4.9 billion, or by a 3.72% annual rate.[5]
For August, the Fed reported that total consumer debt outstanding fell by $12 billion, a 5.8 percent annual rate. That followed a $19 billion decline in July, which had been the largest in dollar terms on records dating to 1943. It was a 9.1 percent decline, the largest such drop since a 16.3 percent fall in June 1975.[6] Washington, November 6 - Americans cut their debt by a larger than expected $14.8 bln in September to bring total consumer credit down to $2.46 trln, the lowest level since June 2007, the Federal Reserve reported today. That translates to a 7.19% drop at an annualized rate, marking the eighth consecutive month of credit declines. That's the longest string of monthly declines since the series began in 1943.[5] WASHINGTON (Reuters) - Total U.S. consumer credit dropped by a bigger-than-expected $14.80 billion in September, Federal Reserve data showed on Friday, indicating households prefer to reduce debt and are still reluctant to spend.[3] Reuters.com is reporting that the U.S. consumer credit plummeted by $14.80 billion in the month of September according to statistics that were compiled by the Federal Reserve. This amount is significantly larger than the total that was predicted by economic analysts when they were polled by Reuters prior to the information being released.[2]
Credit unions had $240.5 billion in outstanding consumer credit in September, down from the revised figure of $241.6 billion in August, according to data released today by the Federal Reserve.[7]
The Federal Reserve said Friday that borrowing fell at an annual rate of $14.8 billion in September. That's the biggest decline since July and was larger than the $10 billion drop economists expected. Americans are borrowing less as they try to repair cracked nest eggs and replenish rainy day funds in a dismal jobs market.[8] Economists surveyed by Thomson Reuters expect consumer credit fell by $10 billion at an annual rate in September after a decline of $12 billion in August.[6]
September consumer credit outstanding fell at a 7.19 percent annual rate to $2.46 trillion.[3] In September, total outstanding consumer credit, including revolving and non-revolving credit, declined to $2.46 trillion, or by 4.7 percent compared to a year ago, the Fed said.[9]
The $14.8 billion overall decline in borrowing left total consumer credit at $2.46 trillion in September.[8] Total consumer borrowing fell a seasonally adjusted $14.8 billion, or 7.2%, to $2.456 trillion in September, according to the Federal Reserve.[10]
NEW YORK (CNNMoney.com) -- Consumer credit fell in September for the eighth straight month, the longest streak of declines since the Federal Reserve started keeping records in 1943.[10] It looks more and more like people will not be traveling or shopping this holiday season. The Federal Reserve released its monthly consumer credit report which showed activity''decrease at an''annual rate of 6 percent in the third quarter of 2009.[11] Proponents of the theory that there has been a secular shift in the American psyche away for a culture of consumerism and toward a new-found frugality will be heartened by the latest consumer credit data from the Federal Reserve.[4]
A perfect storm of factors during the 2007-2009 recession has coalesced, resulting in steadily declining consumer credit balances. Stagnant incomes in many job segments, the loss of more than 7.6 million jobs from the workforce, and the effects of reduced credit lines and higher interests rates from banks and card issuers have prompted Americans to reduce their credit balances over the past year. Most economists view the declining balances as a positive development, long-term, as Americans over-consumed this decade, resulting in high and in many cases unsustainable credit card balances.[9] Many are finding it hard to get credit as banks, hit by the worst financial crisis in decades, have tightened lending standards. While economists have worried for years about the low rate of U.S. savings, the concern is that consumers could derail the fledgling recovery if they begin saving too great a share of their incomes.[6] The Fed's report doesn't include mortgages or other loans secured by real estate. While economists have worried for years about the low rate of U.S. savings, the concern is that consumers could derail the recovery if they begin socking away too much of their incomes.[8]
Non-revolving debt, which includes auto loans and personal loans, fell at a 3.7 percent annual rate or by $4.9 billion to $1.57 trillion. [9] In Q3, total outstanding debt declined at a 6.1 percent annual rate; it fell at 6.6 percent and 3.7 percent annual rates in Q2 and Q1, respectively.[9]
Borrowing by consumers for revolving credit, including credit cards, fell at an annual rate of 13.3 percent in September, the same as August. This category has declined for a record 12 straight months.[8] Revolving credit decreased at an annual rate of 10 percent, and nonrevolving credit decreased at an annual rate of 3-3/4 percent.[12]
Revolving credit, made up of credit and charge cards, dropped $9.93 billion, or at a 13.26 percent rate, to $889 billion, the data showed.[3] Revolving credit, which includes credit card debt, tumbled $9.9 billion, or 13.3%, to $898.9 billion. That's a 10% decrease from the previous year.[10] Broken down, revolving credit lines fell by $9.9 billion while nonrevolving credit declined by $4.9 billion.[13]
Nonrevolving credit, which includes car and student loans, fell by $4.9 billion, or 3.7%, to $1.567 trillion. That's a 3.8% drop from last year.[10]
Overall, outstanding consumer credit fell to $2,465 trillion, down from $2,475 trillion in August. It was the eighth consecutive monthly decline.[7] The consumer credit decline for August was revised up to $9.9 billion from $12.0 billion.[13] Analysts polled by Reuters had forecast consumer credit dropping by $10.0 billion in September.[3]
As Reuters reported on Friday, U.S. consumer credit declined by a bigger-than-expected $14.8bn in September.[4] Let's await another quarter of consumer credit data before declaring an end to the traditional consumption-based U.S. economy and the days of robust GDP growth.[9] Short-term, however, "the great credit card pay-down" will lower U.S. GDP growth, as it will constrain consumer spending, which accounts for the bulk of U.S. GDP.[9] Anyone betting on a rebound in U.S. consumer spending or hoping households would power future economic growth are in for a shock.[4]
The next major unresolved question concerns whether consumer spending, which historically accounts for 60 to 65 percent of U.S. GDP, will occupy as large a space in the U.S. economy in the future. If the current "frugal consumer" trend endures, it's highly likely that consumption as a percent of GDP will decrease.[9]
Some economic schools argue that lower consumption levels imply a lower structural GDP growth rate for the United States -- arguing that a high rate of consumer spending is required to achieve a high GDP growth.[9] Many economists believe the jobless rate will rise further in coming months. There some positive signs this week that consumer spending may not weaken as much as had been feared.[8]
Regardless, a drop in consumer credit signals lower aggregate consumer spending in the near term.[13] WASHINGTON ( TheStreet ) -- Consumer credit fell at a faster pace in September, signaling that consumers are still focused on reducing debt and cutting back on their spending.[1] The reason for the decline in consumer credit has not changed. Consumers continue to believe they are too highly leveraged and are working to repay their debts. Banks are worried about possible loan defaults, and in return, they have tightened lending conditions and pulled available credit from even the most credit worthy borrowers.[13] As the economy continues to shed jobs by the thousands, the credit crunch is being compounded. Cash-strapped consumers have a tough time paying their bills and are more reluctant to take on additional debt. Maher said he thinks the decline is largely due to consumers saving the cash they have and moving away from reliance on credit to pay their bills. Another factor is that banks have tightened lending standards because of a heightened default risk, so consumers see less credit available to them.[10]
I doubt it is consumers paying off debt as much as it is consumers NOT paying and the banks charging off, and the banks yanking credit or raising the rates to the point only someone who knows bankruptcy is coming would use the cards. I firmly believe that a new "crash" is bearing down on us, and this will be the mother of all crashes.[12] Even going so far as canceling my oldest card, which screws my FICO score greatly. Over this summer, I had three cards raise rates (again) AND had two more cards canceled. Once again, screwing FICO which will "justify" the banks upping rates AGAIN. Many experts seem to think that the American consumer is changing their credit habits. Looking around, and yes I know it is anecdotal, the majority do not seem to be changing their habits, they are just scaling them down a bit.[12]
I think it would be a lot more useful to have a longer term graph so we could compare credit levels to the time period before everyone took out 2nd mortgages to finance their lifestyles of excessive consumption, and consumers would receive multiple unsolicited credit card offers in the mail each week.[12]
Last August, consumer credit contracted for the first time since January 1998. "These are not minor declines we've seen over the past few months," said Sean Maher, economist at Moody's Economy.com.[10] Economists were expecting a smaller $10 bln decline in September after credit was reported as falling $11.98 bln in August.[5] Economists predicted a decline in total borrowing of $10 billion in September, according to a consensus survey from Briefing.com.[10]
August saw a downwardly revised $9.9 billion decrease in total consumer borrowing.[10]
At credit unions, outstanding non-revolving credit, loans for cars and boats, was $206.3 billion, down from August'''s $207.5 billion.[7] Credit declined $14.8 billion in September, far worse than the consensus forecast of $10.0 billion decline.[13] The $14.8 bil decline was more than expected, though Aug. figures were revised to show a smaller drop. Credit-card and other revolving debt fell by $9.9 bil.[14] As usual, there were revisions to the data for previous months; August's figures were revised to show a drop of $9.8bn, compared with a previously reported decline of $12bn.[4]
The government reported last week that the overall economy grew at an annual rate of 3.5 percent in the July-September quarter, the first growth after a record four straight declines and the strongest signal yet that the recession has ended. Some worry that growth will sag in coming quarters because much of the third-quarter strength came from government support programs such as the Cash for Clunkers auto incentives.[6] Some worry that growth will sag in coming quarters partly because the nation's unemployment rate keeps rising. It climbed to 10.2 percent in October, the Labor Department reported Friday, the first time above 10 percent since 1983.[8]
Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009.[12] Retail sales were so poor that hundreds of thousand of workers in the sector and business that supply the sector were laid off and thousands of stores closed. The true effect of an awful retail season this holiday will not be''completely evident until the first quarter of next year, but the new consumer credit numbers are not a healthy start.[11] After peaking in the fourth quarter of last year, consumer credit has fallen in each quarter since.[11]
The data provided by the Fed does not provide a way with determining if the drop in consumer credit was driven more by consumers not wanting additional funds or banks not willing to lend.[13] As the September consumer credit data indicated, Americans remain in belt-tightening mode, and paying down credit credit balances is a part of that cautious stance.[9]
The eight consecutive declines in consumer credit is the longest stretch on records dating to 1943.[8] The survey shows that 34% of outstanding consumer credit is held by banks and 21% by finance companies.[11] As soon as consumers have reached the point where the costs associated with exercising credit options no longer appear to outweigh the costs of exercising said options, then we will start to see a resurgence in consumer credit. Unfortunately with some of the ridiculous behaviors that the credit card companies have been engaging in as of late, that industry may be pounding the nails into its own coffin.[12]
Don't use your credit card and stop the transfer of wealth from Main Street to Wall Street. They are borrowing money at zero interest rates from the fed and loaning it to you at 30%. People who can will pay off their balances and people who can't will fill for bankrupcy.[9] The Fed's report covers credit cards, store cards, auto and personal loans. It doesn't include mortgages or other loans secured by real estate.[6]
Nothing good in here. The non-revolving flattened out some in September (gee, you think "cash for clunkers" might have influenced August and September?) but revolving credit - that is, credit cards - continues its base jump without any appreciable change in slope.[12] Economists want us to spend wildly on things (made in China) we don't need with money we don't have, but we have finally wised up! Cancel all your credit cards and use cash or a debit card.[9]
The decline in nonrevolving credit is "really surprising, given the surge of vehicle sales driven by the Cash for Clunkers program," Maher said. Vehicle sales typically show up on balances the month after they were made, and many of the Cash for Clunkers purchases took place in August, Maher said.[10] It is much easier to manipulate just about anything than consumer credit yet they even successfully did that with cash for clunkers.[12] Consumer credit has now declined for eight consecutive months, the longest downward streak since the series started in 1943, according to the Fed.[3]
"Consumer credit will not see a turnaround until unemployment begins to moderate," Maher said.[10] WASHINGTON — Consumers borrowed less for a record eighth straight month in September amid rising unemployment and tight credit conditions.[8]
The Federal Reserve will release the report at 3 p.m. EST Friday. Americans are borrowing less as they try to repair cracked nest eggs and replenish rainy day funds in the face of rising unemployment. [6] Longest streak of declines since Federal Reserve started keeping records 56 years ago.[10]
The 7.2 percent annual rate of decline followed a 4.8 percent drop in August. [8] Borrowing for non-revolving loans, including auto loans, dropped at an annual rate of 3.7 percent in September after edging up 0.1 percent in August.[8]
WASHINGTON — Consumers likely reduced their borrowing for an eighth straight month in September, as layoffs continue and credit remains tight. [6] To hear from Geithner, Bernanke, et al that this recovery must be consumer based. more or less pleading for us to get busy and buy stuff on credit or otherwise, in order to help get the ball rolling. is either so damn naive or cynical one, as to sadden me to the core.[12] We are a credit-based system, as are all modern monetary systems. No meaningful economic recovery can or will occur until the consumer has purged his balance sheet of the inappropriate debt he has and is once again able to earn and borrow. If we supposedly exited the recession on or before September, it sure isn't apparent in this report. You can put a fork in that line of garbage - it's done.[12] A fall in consumer debt as the story relates, is actually good news for the U.S. as most economists state. Savings make us wealthier as a society, and maybe we can use this wealth to fix some of our problems like dying younger than the rest of developed nations with a higher infant mortality.[9] We are screwed either way. If the consumer purges the debt, they are not spending and that makes the economy worse.[12] There have been some positive signs that consumer spending may not weaken as much as had been feared.[6]
Right now we are in a "credit hangover" period when consumers are deleveraging and paying down balances. [12] ''Revolving credit, which mostly refers to credit-card related payments, fell overall to 886.6 billion, compared with August'''s $897.1 billion.[7] Overall, that kind of credit was $1,578.8 trillion, up from $1,578.3 trillion in August.[7]
All the credit card debt is getting written off in every quarter, you can't fool me with these false numbers. [9] I'm hoping we continue to see credit fall. Then maybe when jobs do come back they can be sustained with a stable economy, not this house of cards.[12]
The nation's big retail chains reported Wednesday that consumers spent a bit more last month with sales rising 2.1 percent compared with sales at the same stores in October 2008, according to a tally by International Council of Shopping Centers-Goldman Sachs. That was the best year-over-year since July 2008 and beat estimates of a 1 percent gain. [6] The BLS stats are also flawed, and it is time for the economists to challenge the statistics that are being broadcast. 10.2 percent unemployment is just not a real number.[12]
The total amount financed per vehicle rose by close to $6,000 as consumers did not have the $4,500 rebate to lessen the costs. [13]
SOURCES
1. Consumer Credit Slides in September | The Market Update | Financial Articles & Investing News | TheStreet.com
2. U.S. Consumer Credit Drop Indicates Continued Reluctance to Spend Feature Story
3. U.S. consumer credit falls $14.80 billion in Sept | Reuters
4. FT Alphaville » Blog Archive » US consumers failing to spend, data show
5. US ECON: September Consumer Credit Fell By $14.8 Bln - Forbes.com
6. The Associated Press: Ahead of the Bell: Consumer Credit
7. Consumer Credit Down at CUs and Overall
8. The Associated Press: Consumer borrowing drops $14.8B in September
9. U.S. consumer credit debt falls for eighth straight month in September -- DailyFinance
10. Consumer credit falls for 8th month in record streak - Nov. 6, 2009
11. Home For The Holidays: Consumer Credit Falls Apart 24/7 Wall St.
12. Consumer Credit: Dreadful -- Seeking Alpha
13. Briefing.com: Consumer Credit Falls
14. Investors.com - Consumer Credit Shrinks Again
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