U.S. Credit Card Use Fell for Sixth Straight Month in July

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credit card, cuttingCredit card use by American consumers plunged for the sixth straight month in July, with total consumer debt falling by $3.6 billion, or 1.75%, the U.S. Federal Reserve announced Wednesday.

A Bloomberg survey had expected total consumer debt to fall by $3.5 billion in July, after a revised $1.0 billion decline in June.

In the past 12 months, total consumer debt has fallen 3.1% to $2.418 trillion from $2.497 trillion in July 2009. That's somewhat less than the 3.3% year-over-year rate of decline recorded in June.

Once again in July, all of the nation's consumer debt reduction occurred in revolving debt, which includes most credit credits. Revolving debt fell by $4.4 billion to $827.8 billion. Non-revolving debt, which includes most auto loans, personal loans, and student loans, increased by $700 million to $1.591 trillion.

Belt-Tightening Weighs On U.S. GDP Growth

July's consumer credit report provided 'more of the same' regarding credit card (revolving) and non-revolving debt. Americans are not only paying-down revolving debt, they are weeding-out frivolous consumption.

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A modest-consumption U.S. economy -- should the 'frugal consumer' trend continue -- would represent a structural change for the world's largest economy. In the last decade, consumer spending accounted for 65% to 70% of U.S. gross domestic product. Back then, that metric depended on rising median incomes, an ample supply of credit, and a willingness to spend. Now many of those factors are uncertain: Incomes have been stagnant in many job segments, credit is comparatively tight (with noticeably higher interest rates for credit cards), and consumers remain in the aforementioned 'belt-tightening' mode.

If the above pattern persists, consumer spending could comprise a lower percentage of U.S. GDP and if commercial spending (such as business investments and exports) fails to fill the gap, U.S. GDP will suffer.
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