Consumer Credit Dropped in August 2011

The latest data from the Federal Reserve G-19 Statistical Release indicated that consumer credit dropped in August 2011, which was the most in one year. Total consumer credit was $2.4449 trillion in August 2011; compared to $2.4544 trillion in July. The decrease was $9.5 billion or -4.6% from July 2011, compared to an $11.9 billion increase in July 2011.

Non-revolving debt (credit cards)

Most of the decrease was attributed to non-revolving credit, which decreased by 5.2 percent or $7.23 billion from July 2011; compared to a rise of $15.48 billion in July 2011.  This was the largest decline since August 2008. Non-revolving debt included student loans, auto loans and mobile home loans.  Loans secured by real estate, such as home mortgages and home equity lines of credit, are not tracked for this report.

Revolving debt

Revolving debt decreased $2.27 billion or -3.4 percent from July 2011.  Revolving debt is 99 percent of credit card debt.

Reasons for drop

ABA’s Chief Economist James Chessen commented: “The August drop in consumer credit is the result of economic uncertainty. The political debacle over raising the debt ceiling, the European debt problem, the decline in stock prices, and weak job outlook undermined consumer confidence. Consumers aren’t willing to make big purchases and borrow when they are unsure about the economy.”

Economic forecasters projected increases in consumer credit of anywhere from $2 billion to $10 billion for August.  There were too many unpredictable events that caused the decline, which contributed to the forecast errors.

September numbers are expected to be higher because auto purchases were higher and more jobs were added in September. Auto purchases were at a 13.04 million annual rate in September, compared to 12.1 million in August and 12.2 million in July.  In September, the number employed increased to 103,000 from 57,000 in August, but this wasn’t enough to make an impact, so the national employment rate stayed at 9.1% from August to September.

Credit Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

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