Despite the fact that a July employment report indicated that the recession was grinding to a halt, additional information suggested that the national economy still had some tough times ahead due in large part to restrictions on consume credit growth.
According to the Federal Reserve, the total outstanding consumer debt had declined the fifth consecutive month as of June. It dropped at an annualized rate of 4.9% to a $2.5 trillion. Analysts at Bloomberg News have said that this latest series of declines is the longest since 1991.
With revolving debts like credit cards, the outstanding amounts dropped $917 billion, with a 6.8% annualized rate drop. Federal Reserve reports also show that non-revolving debt like car loans went down 3.8% to $1.58 trillion. Mortgages and other real estate based loans were not included in the report.
The drops in consumer debts are being balanced with the fact that sales are also down. Retailers noted noticeably weak sales for July. Related to this is the fact that most businesses think that few Americans are taken on new credit card debt.
One of the positive developments comes in the form of increased car loans sponsored by the “Cash For Clunkers” program.
Essentially, there are two distinct factors that are causing consumer debt to shrink nationwide. The first one has much to do with the number of people who have become focused on paying down their loan balance, increasing savings totals, and generally making efforts to reduce debt.
Obviously, this change of habit will be better for the economy down the road since consumers will be in good shape financially – and more likely to put back into the economy later.
The second factor is that banks and other financial institutions are continuing to remove the borrowing power of consumers by reducing the availability of credit and adding new guidelines that make qualifying for personal and auto loans more difficult.
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