Consumer Credit Falls in August for First Time in 10 Years

Credit frugal consumers for clamping down on their spending and paying off debt or blame banks for tightening credit to the point that people can’t borrow; either way, total U.S. consumer credit outstanding fell $7.9 billion in August, the first drop since January 1998.

The drop was also the largest since the Federal Reserve began keeping records in 1943.

The Fed, in its monthly report on consumer credit commonly called G.19, said that total consumer borrowing dropped at a 3.7 percent annual rate in August. Consumer credit increased at a revised 2.4 percent annual rate in July.

The G.19 does not include debt backed by real estate.

Economists had been expecting a modest increase in overall consumer credit of about $5 billion in the month.

"The numbers released by the Fed Tuesday were certainly surprising," said Kaulkin Ginsberg Consumer Finance Analyst Dimitri Michaud. "But it makes sense given all the negative economic news lately. We still expect consumers to rely heavily on credit lines that have already been extended, even as new credit becomes more difficult to obtain."

Non-revolving debt was the big loser, as outstanding balances on debt like automobile and student loans shrank by $7.3 billion, or at an annual rate of 5.4 percent. July was also a tough month for non-revolving debt as that category gained only 0.9 percent.

Even revolving debt, most commonly credit card balances, wasn’t immune from the declines. Revolving debt balances shrank by about $600 million in August, or at an annual rate of 0.8 percent. It was the first decline for revolving debt since March 2005.

Although both revolving and non-revolving debt have seen decreases in various months, August was the first month since January 1998 that both declined and overall consumer debt decreased.

At the end of August, total consumer credit outstanding in the U.S. was $2.577 trillion.