Consumers slashed their borrowing in July by the largest amount on record as job losses and uncertainty about the economic recovery prompted Americans to rein in their debt.
The magnitude of the drop surprised analysts. Some thought the Cash for Clunkers program — which began in July and aided auto sales and car loans — would have blunted cutbacks in other lending areas. The Federal Reserve reported today that consumers ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943. Economists expected credit to drop by $4 billion.
Demand for non-revolving credit used to finance cars, vacations, education and other things fell by $15.4 billion, also a record decline. That 11.7% pace was on top of an 8% annualized decline in June. Consumers’ appetites for revolving credit, primarily credit cards, declined by $6.1 billion in July, an annualized rate of 8% that followed a 6.4% drop in June. Economists predict that consumers will be spending less, saving more and trimming debt to get their household finances — which have been decimated by the recession — into better shape.
