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

Consumers Slash Debt By Record Amount In July

U.S. consumers cut their borrowing by the largest amount on record as Americans put more of their money into savings and toward paying off their credit cards rather than spending, the Fed reported Tuesday afternoon.

The amount of debt slashed in July was eye-popping: Forecasters expected a $4 billion drop in credit; consumers instead slashed a whopping $21.6 billion in credit. This was the biggest decline since this data began being kept in 1943.

This is great news on a personal level but could spell long-term trouble for a U.S. economy that is 70-percent dependent on consumer spending.

Here's what's interesting: Forecasters expected borrowing to stay higher, if only for the reason that 700,000 new cars were purchased during the cash-for-clunkers program, which began in July.

But demand for non-revolving credit -- one-time loans used to pay for cars, for instance -- fell by a record of $15.4 billion, or 11.7 percent in July. So what does that mean? People were paying cash for all those new cars?

In the revolving credit department -- credit cards, mostly -- demand for debt fell by $6.1 billion, an 8 percent drop, a larger decline than in June, when debt fell by 6.4 percent.

One reason to not get too excited about the Fed's report is that outstanding consumer credit now stands at $2.47 trillion. Yes, trillion.

-- Frank Ahrens
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By Frank Ahrens  |  September 8, 2009; 4:58 PM ET
Categories:  The Ticker  | Tags: Federal Reserve, consumer credit, debt  
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