USconsumers cut borrowing as unemployment starts to bite
US consumers slashed their borrowings by a record $21.6bn (£13bn) in July, the Federal Reserve said last night.
Total US consumer credit fell at a 10.4 per cent annual rate to $2.47 trillion, suggesting that households were shying away from credit amid rising unemployment.
Analysts were expecting a much smaller $4bn decline in July after credit was reported as falling $10.3bn in June. The Fed has since downwardly revised June’s estimate to a steeper $15.5bn decline.
Consumer credit has now declined for six consecutive months, the first time this has happened since the period from June 1991 to December 1991.
With an unemployment rate of 9.7 per cent, the highest in 26 years, and incomes falling, households have drastically cut back on spending. Consumer spending accounts for about two-thirds of US economic activity.
Most of July’s debt decline was seen in non-revolving credit, such as loans for cars and real estate. This type of debt fell by a record $15.4bn, or at an annual rate of 11.7 per cent, the largest rate of decline since January 1977.