Consumers cut debt for 5th straight month
WASHINGTON -- Consumers paid down their credit cards and cut other debt in June for the fifth straight month as they rebuild savings battered by the recession.
Outstanding U.S. consumer debt fell $10.3 billion, or 4.9% at an annual rate, to $2.5 trillion, the Federal Reserve said Friday. That's a much steeper cut than the $4.7 billion analysts expected, according to Thomson Reuters.
June's reduction follows a 2.6% cut in May and a steep 8.2% drop in April, when consumers reduced their borrowing $17.4 billion. That was the most in dollar terms on records dating back to 1943.
Widespread job losses, declining home values and reduced stock portfolios have spurred Americans to spend less and save more.
In the first three months of this year, Americans' net worth shrank by $1.3 trillion, the Fed has reported, due mainly to lower home prices and investment losses. Consumers responded by cutting back on their spending at a 1.2% annual rate in the April-June quarter, after a slight increase of 0.6% in the first quarter.
Americans' savings rate, meanwhile, jumped to 5.2% in the April-June period, the highest since 1998. While potentially a good thing in the long run, greater saving could slow any economic recovery, as consumer spending accounts for 70% of economic activity.
The five straight monthly declines in consumer credit mark the longest stretch of pullbacks since consumer borrowing fell for seven consecutive months from June through December 1991.
Consumer credit has fallen in eight of the last nine months, after the financial crisis worsened last September. That may also reflect the greater difficulty many consumers have had in obtaining auto loans and credit cards as banks tightened credit after reporting huge losses last year.
Total revolving credit outstanding — mostly credit cards — fell by $5.3 billion to $917 billion in June, the Fed said. Non-revolving credit — mostly auto loans — dropped by $5 billion to $1.59 trillion.
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