Consumer Credit Plunges in May, April Revised Downward
Analysts surveyed by Bloomberg survey expected consumer credit to fall by $2.0 billion in May. Consumer credit fell $5.2 billion in March.
With the April revision, May marked the fourth consecutive monthly drop in consumer credit, and the 18th decline in the past 20 months. In the past 12 months, total consumer debt has fallen 3.9% to $2.415 trillion from $2.514 trillion in May 2009.
Americans Keep Plastic In Wallets
The bulk of the nation's consumer debt reduction in May occurred in revolving debt, which includes most credit cards. Revolving debt fell by $7.3 billion to $830.8 billion, at an annualized rate of 10.5%. Non-revolving debt, which includes most auto loans, personal loans, and student loans, decreased by $1.8 billion to $1.584 trillion, at an annualized rate of 1.4% .
A perfect storm of factors coalesced during the 2007-2009 recession, resulting in steadily declining consumer credit balances. Stagnant incomes in many job segments, the loss of more than 8 million jobs from the workforce, reduced credit lines, and higher interests rates by card issuers have prompted Americans to reduce credit balances over the past two years.
Most economists view the declining balances as a positive development, in the long run, since Americans over-consumed in the previous decade, resulting in high and in many cases unsustainable credit card balances.
In the short run, however, 'the great credit card pay-down' will lower U.S. GDP growth, as it will constrain consumer spending, which accounts for the bulk of U.S. GDP.