Consumer credit drop good news for the frugal, for retailers not so much

For years, we became so accustomed to consumer credit going up, up and up, it was one measure of the economy that seemed infinite. In February, however, consumers proved gravity, cutting their borrowings for the fourth time in the last six months. Consumer credit outstanding fell by an adjusted rate of about 3.5 percent or $7.5 billion, to $2.564 trillion. Bloomberg had estimated it would fall by only $3 billion, and Dow Jones, by just $1 billion.

More than $7B may seem huge, but there was a revision in January to higher credit and a final smallish drop in December, and this sort of makes today's reading a wash. January's consumer credit was revised to a gain of $8.1 billion rather than the $1.8 billion rise originally reported; and December's consumer credit fell by $5.6 billion instead of $7.5 billion.

The numbers ahead may be grossly different now that the TALF has started to kick in. The figures reported today only encompass direct consumer credit, not credit toward housing and borrowings against housing (although those markets are quiet right now anyway). Interestingly enough, non-revolving credit (including car loans) rose by 0.2 percent to $1.608 trillion. The big drop was from credit cards in the revolving credit side, which fell by $7.8 billion to $855.7 billion.

The consumer credit numbers are definitely watched by traders who watch MasterCard Inc. (MA) and Visa Inc. (V). Both stocks were down more than 2 percent in yesterday's broad sell-off in the market.

This notion probably gives a bit more ammo to those who have been harping on banks for cutting credit and reducing credit lines. It also plays into the most recent Meredith Whitney call of banks and credit being cut.

This is good news for those who want the public to work on spending less and saving more. Less so for retailers who deal in high volumes of transactions.

Jon Ogg is an editor at 24/7 Wall St.

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