August marked the largest drop in consumer credit in almost a year according to a statement released by the Federal Reserve on Sunday.
The $9.5 billion decrease follows an $11.9 billion increase the previous month. The Feds also announced that non-revolving credit such as student loans and the financing of automobiles fell by the largest percentage in three years. Non-revolving loans were down by $7.23 billion in August.
The drop in consumer credit means Americans are either paying down old debt or simply lack the confidence based on the current economy to buy non-essential goods.
Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York told Business Week:
"Consumers were cautious over taking on additional debt at the end of the summer after the volatility in the stock markets and the uncertainty caused by the failure of Congress to work together to bring down these trillion-dollar deficits."Not all economic news was bad, more jobs were added in September than expected with payrolls adding an additional 103,000 workers, an announcement made after a revised 57,000 gain over the prior month.
With credit downgrades in Italy and Spain stocks in the U.S. also rose with the Standard & Poor's 500 Index climbing 0.3 percent to 1,167.87.
According to Discover Financial Services CEO David Nelms:
"Continuing improvement in credit, as our delinquency rate in card reached a 25-year low at 2.43 percent. And for the first time since 2007, our card net charge-off rate dropped below 4 percent."It's a mixed bag of economic strengths and weaknesses but at least Americans appear to be getting their spending under control.
Do you consider the information listed on this page to be a good or bad sign for the U.S. economy?