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

Consumer credit drops, but far less than expected

Consumer credit -- the amount of credit that American consumers have outstanding -- fell for the ninth straight month, but not nearly as much as forecasters predicted, the Federal Reserve said this afternoon.

Outstanding credit in October fell $3.5 billion to (yes, it's jaw-dropping) $2.5 trillion.

Forecasters expected October debt to fall by anywhere from $9.5 billion to $10 billion, so that tells you a couple of things:

-- Consumers are cutting back on spending, but not all that much.

-- The holiday news for retailers could be good. If consumers are not pulling back spending as much as expected in October, they may end up spending more than expected in December.

Here's the breakdown of the October credit report:

Revolving credit debt -- essentially, credit cards -- fell by $6.9 billion to $888.1 billion. That's a 9 percent annual rate, and it means that if people are buying, more are paying with cash than credit.

Non-revolving credit -- student loans, car loans and the like -- actually rose by $3.4 billion to $1.6 trillion. That's a nearly 3 percent annual gain.

Cash for Clunkers could have had something to do with the surge, with people taking out loans to buy their new cars.

This is the point in the blog where I remind you that 70 percent of U.S. GDP is based on consumer spending and in order for there to be a lasting recovery, people are going to have to go back to buying stuff. However, historically low savings rates were one of the things that got us into this mess.

-- Frank Ahrens
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By Frank Ahrens  |  December 7, 2009; 3:30 PM ET
Categories:  The Ticker  | Tags: car loans, consumer credit, credit cards  
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Comments

Reports that the temporary employees at the retail store are college graduates happy to get any jobs.

There will be great sales starting December 26th and announcements of large retail stores closing in January.

Posted by: bsallamack | December 7, 2009 6:44 PM | Report abuse

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