Consumer credit shrinks further as borrowers retrench

U.S. consumers continue to pay down debt at a brisk pace -- either on their own or because their bankers are cutting them off.

From Bloomberg News:

Consumer credit fell $15.7 billion, or 7.4% at an annual rate, to $2.52 trillion in April, according to a Federal Reserve report released today. Credit decreased by a record $16.6 billion in March, more than previously estimated.

"Consumers have retrenched in the face of rising unemployment and are paying down their debts and increasing their savings," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "Those consumers who do want to spend are having their credit limits cut left and right by banks that are increasing their credit-risk checks."

Revolving debt, such as credit cards, decreased by $8.59 billion in April, according to the Fed’s statistics. Non-revolving debt, including auto loans and mobile home loans, decreased by $7.09 billion. The report doesn’t cover borrowing secured by real estate.

Consumer credit now has fallen in six of the last seven months. In the 2001 recession, by contrast, credit continued to expand through the downturn.

This deleveraging by consumers will be a good thing in the long run, as Americans repair their balance sheets. But it’s no help to the economy in the short run.

-- Tom Petruno

Photo credit: Justin Lane / European Pressphoto Agency

Comments

[Commie Stooge]

Ever since Ronald Reagan came into office; Americans have gone on an orgy of debt; both public and private.

Want a vacation? Take a home equity loan and enjoy!

Want a luxury SUV? Then lease one you can't afford to buy!

Want a big McMansion? Then take out a home loan with a low teaser rate hoping you'll flip th house later - just like on TV!

Want a great lifestyle? Then just charge away!

As a self-proclaimed skeptic who pays my credit cards in full; drives a 10 year old Dodge Neon; and returns my soda cans for the deposit I've been awaiting this day of reckoning for years!

[Smi2le]

This is VERY good economic news. Pretty soon the savings rate will begin to rise again.

Americans are learning, again, that asset bubbles, and 401ks and other easy money investment schemes are a scam created under the Reagan administration.

[Joseph....The Real Estate Guy.]

I think it's a good thing!