Consumers Scale Back on Credit in July

By September 10, 2012Economy

The Federal Reserve Board said that U.S. consumer credit fell 1.5 percent at the annual rate in July, its first overall decline since last August. Total debt outstanding fell from $2.708.5 trillion in June to $2.705.2 in July.

The decline came from a sharp drop in revolving loans, which was down for the second month in a row. Revolving loans, which include credit cards and other lines of credit, were off 6.8 percent in July, building on the 4.5 percent decrease in June. This suggests that consumers have scaled back their credit lines in the summer. This contrasts from recent data from the Bureau of Economic Analysis, which found that Americans increased their personal spending in July. If true, they must have done so without additional borrowing.

Meanwhile, nonrevolving lines rose 1.0 percent in July, well below the 9.8 percent gain of June. This category of loans, which includes auto and student loans, has grown 6.3 percent over the course of the past year. These loans have helped to finance greater motor vehicle sales – one of the larger drivers of economic growth of late. But, growth in student lending, which is administered now by the federal government, has been tremendous, up 24.8 year-over-year. When you exclude the federal government from the analysis, nonrevolving loans were 1.2 percent higher than they were on July 2011.

This suggests that consumer debt in consumer indebtedness has moved only marginally higher since this time last year. While overall credit outstanding is 4.4 percent year-over-year, the bulk of that growth was in auto and student loans, particularly the latter.  

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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