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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Consumers Continue To Cut Debt

Sure, The Ticker gets tired of reporting bad economic news all day -- the bad news that happens and the bad news we see in what happens.

So here's some good news: The Federal Reserve said today that U.S. consumers cut their debt for the fifth straight month in June, putting more into their bank accounts and less onto their credit cards.

Consumer debt in June dropped nearly 5 percent to $2.5 trillion. Okay, so that's still a lot. But what's important is that consumers are using more of their cash to pay off those 25-percent credit card loans, and that's good news in an over-leveraged economy.

This marks the longest pullback in consumer credit since the second half of 1991, which tells you just how long we've been spending our socks off.

At the same time, the U.S. saving rate jumped 5.2 percent in the second quarter, the highest rate since 1998. More good news.

The bad news: Americans still have nearly $1 trillion on their credit cards ($917 billion). The good news: We shaved $5.3 billion off of that in June. So, way to go!

There are those who will say that this will cripple a U.S. economy that is 70-percent based on consumer spending and still mired in a recession.

The way we look at it right now is that the government is busy stimulating the economy -- to the tune of $787 billion over the next year-plus -- so this is a good time for individual consumers to get their house in order.

Each person's contribution to the stimulus is small -- the cost is spread across society, like insurance -- so Americans will feel less pain from paying their cut of the stimulus than by carrying large credit card bills. So keep at it, America.

-- Frank Ahrens
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By Frank Ahrens  |  August 7, 2009; 5:40 PM ET
Categories:  The Ticker  | Tags: consumer spending, credit cards, debt  
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Next: August 10, 2009

Comments

Absolutely keep at it America, keep saving!! Not to be a damper on the economy, but we as a nation cannot continue to live the way we've lived via debt spending (as individuals). We need a new direction. An economy that depends 70% on the average American consumer continuing to spend on unnecessary baubles and the "next new thing" is an unsustainable one, period. We've overspent for years; we're tapped out. We need new industries, new sources for jobs, and real wage growth. Until then, I ain't spending a dime. Unfortunately, although I am an Obama fan, the "Cash for Clunkers" is a prime example - no one buys a new car for $3,500 or $4,500 - where is the rest of the money coming from? Either from NEW and increasing debt for the purchasers who are already deeply in debt anyway or else from people who have cash stashed away who don't and never have needed government help to buy a new car anyway.

Posted by: indy474 | August 7, 2009 9:37 PM | Report abuse

Eliminating debt is a good thing and a welcome trend. I only hope it is due to a change in the way people think rather than a statistical anomaly because credit isn't available. When credit cards limits are reduced, or the cards are canceled, the natural result is for less to be charged. Out of work people can't get credit. Those fearful of losing a job are more fiscal responsible. So is this saving rather than charging a temporary thing that is forced on the consumer? Or will those who were accustomed to living on credit learn something and make the changes permanent.

Posted by: walt17 | August 8, 2009 7:58 AM | Report abuse

I finally got into my private jet seat. The seat of air power is a nice place to be sitting. The seat next to me is empty but I can't have everything so for now speed will do. I'm sitting still and I feel like I'm going 500 miles per hour. It must be the coffee. The benefits of going private are multiples and more is more. You can have a cigarette after lunch or whatever, you don't need to share the bathroom with the coach people and best of all is the privacy of going private. The liquor is out of this world, which makes you wonder why you ever went public to begin with. There are public benefits, like full service gas stations Above & Beyond. That is defense and defense always keeps the friendly skies a lot more friendly and intelligence keeps them a lot more secure. I've been busy holding up banks and it's always nicer to have somebody to hold them up with. If you build a wall out of plastic, sooner or later it's going to slide. Hard rock is always the better option and although it costs more, the interest is greater. It's always interesting and that's why it's profitable. Keep your spirits high, your children secure and your wives happy. I'll keep flying solo because that is just how it is supposed to be and some things can never be so they are safe. As always, best wishes to everybody at the Washington Post. If you keep me out of the newspaper, I'll hold up a bank for you.

Note: Twitter is ticking again, but how dependable it is is questionable. The morning paper is still a sure thing though. Then there are shore things.

Posted by: Dermitt | August 8, 2009 10:26 AM | Report abuse

Here's the REAL story....

We already have computers, latte machines, DVD's, CD's, Computer Programs, "Cash for Clunkers" and the motion pictures coming out of Hollywood stink.

Instead of eating out, I am honing my cooking skills and making most of my breakfast and lunch meals on the weekends (Quiches, stuffed-shells and what-not's) and then "flash-freezing" them for the week.

I bought Ron Douglas' books and use his website, www.recipesecrets.net, to create the stuff you buy outside the house, which can be made for less than 1/3rd the price at home and you know what is going into your meal!!!

The best thing the Federal Reserve can do is to keep the Fed Funds Rate and the Fed Discount Rate at current levels, so every consumer can take advantage of knocking down our personal debt.

The key the Federal Reserve needs to look at is the fact that everytime Greenspan ratcheted-up the Fed-Funds Rate, it was one more nail in the coffin for the economy.

Posted by: Computer_Forensics_Expert_Computer_Expert_Witness | August 8, 2009 7:22 PM | Report abuse

The coffin business is still doing well.

Coffin-Furniture
Mar 16, 2001 ... In your living room today, in your grave tomorrow. But can two Web-based companies make a living here? There's a concept. http://www.casketfurniture.com/
Shoot pool, kick off and rest in peace in your pool table. Sounds like a plan. Love for a lifetime and beyond. Shoot to thrill.

Posted by: Dermitt | August 10, 2009 8:58 AM | Report abuse

Great, consumers are getting the message, savings are good. But, what about the folks in the executive and legislative branches, why are we as nation still going with cap in hand to foreign nations to buy our debt to finance things we do not need. Like oil, why are we spending so much of our nations wealth on oil. Spending it irresponsibly in the international oil bazaars. Clearly, would it not make cents, to make energy here in the US cleanly and safely? So whats stopping us?

Posted by: JoeValues | August 10, 2009 8:40 PM | Report abuse

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