Last week the Federal Reserve reported that total consumer borrowing has been reduced by $3.63 billion in July. This debt reduction covers everything from car loans to credit cards. Originally, economists had a projected forecast of $3.80 billion for the reduction, but the $3.63 billion landed just under their prediction. The big factor in the reduction of consumer borrowing is that households have cut back on their credit card spending, which is contributed the the state the economy is in. For the 23rd month in a row credit card use has declined and taken a fall. With the economy already struggling, this certainly does not give it the boost that is needed for the economy to rebound and start heading the other direction.
As a result of consumer cutbacks, borrowing on credit cards fell by 6.3 percent in July which came just after the even bigger 7.5 percent decline in June. The credit card category has now fallen for a record of 23 consecutive months as many Americans have struggled to repair their household finances after the worst recession since the 1930s.
The long stretch of declining borrowing has left total consumer credit at an annual level of $2.42 trillion, 6.3 percent below the peak set in July 2008 of $2.58 trillion in credit. The Fed’s credit report covers credit card debt, auto loans and other debt not secured by real estate. It does not however, cover home mortgages or home equity lines of credit.
On a lighter note, borrowing in the category that includes auto loans rose 0.6 percent in July after an increase of 3.2 percent in June and 1.2 percent in May. This is good news and this represents a three month increase which has helped revive auto sales this summer. This is much needed for the auto industry after they have suffered a huge hit during the recession.
At the end of last week, the government reported that the unemployment rate in August rose to 9.6 percent in August, this is up from 9.5 percent in July as payroll jobs declined by 54,000. The jobless rate has shown slight improvements after reaching a high for this of 10.1 percent last October.
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