Decline in U.S Consumer Credit

Written by Stefanie Marty

Statistic from the Federal Reserve shows that U.S. consumer credit has fallen in twelve of the past 14 months to a current amount of $2.46 trillion. This amount is 4.7% lower than a year ago. Alone in September consumer credit fell by a 7.2 percent annual rate. This change of credit includes revolving as well as non-revolving debt. Revolving debt credit includes most credit cards and accounts for an amount of $889 billion. This kind of consumer credit fell at a 13.3 percent annual rate in September. On the other side the non-revolving debt, which includes auto and personal loans, fell at 3.7 APR to $1.57 trillion.

Different factors account for this decline in consumer credit over the last year. During the recession unemployment increased, incomes stagnated in many job segments, lenders tightened their credit conditions and consumers got more conservative with their money.

In the long-term the declining balances are seen as a positive sign by most economists. But in the short-term consumer spending and thus the U.S. GDP will suffer. With 70% of the GDP consumer spending accounts for the bulk of the U.S. economy and with the new development economists wonder whether consumer spending will occupy such a large space in the U.S. economy in the future. People are concerned about the U.S. GDP growth, which decreased due to the decline in consumer credit. But still, this development is new and it is too early to worry already about the U.S. GDP growth.

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