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Consumer Credit Report: Decline in Borrowing, Highest in Nearly Seven Decades

By Faye Mergel
Published: Saturday, January 16th, 2010

The Federal Reserve’s consumer credit report released this Friday showed another decline in consumer borrowing for the tenth straight month in November. Analysts were stunned by the huge decline in borrowing, which is the highest since the economic crisis of the 1930’s.

Consumers might be able to save more money as they continue to cut back on their spending, but analysts worry that such reluctance to spend might stall recovery that the United States is working very hard to achieve.

Economists earlier predicted that consumer borrowing would once again decline in November, but they only foresaw a $5 billion drop. However, the Federal Reserve’s report last Friday showed that total borrowing went down by $17.5 billion.

The Fed’s consumer credit report, released each month, estimates changes in the total outstanding loan to Americans. This document shows outstanding balances for banks, federal creditors, finance companies, savings, securitized asset pools, and other financial and lending institutions.

Experts say Americans are borrowing less primarily because of the uncertainty over their job prospects. Moreover, they are planning to put more money in their savings as many of them have nearly depleted their funds during the recession. The Fed also reported on Friday that another 85,000 Americans lost their job in December, bringing the total number of job loss to 8 million since a recession hit the country in December 2007.

This decrease in borrowing for the tenth straight month does not mean that all consumers remain reluctant to borrow. Analysts explained that many Americans do want to borrow, but because lenders face the toughest economic crisis since the Great Depression in the 1930’s, applying for any type of credit has become quite difficult.

Since consumer spending accounts for 70 percent of the country’s total economic activity, experts fear that saving too much out of individual income can prevent the United States from sustaining its recovery.

A 17.5 billion decrease in November is the highest drop in dollar terms recorded since 1943. The 8.5 percent decline between October 2009 and November 2009 is the biggest drop in percentage since May 1985, when borrowing declined by 9 percent.

Meanwhile, a $13.7 billion drop in credit card borrowing is the highest the United States has ever recorded in dollar terms. November’s drop is equivalent to 18.5 percent, the biggest since card borrowing plunged by 29.6 percent in December 1974. In terms of consecutive declines, the tenth straight month recorded in November is the longest on record.

The Federal credit report does not include borrowing secured by real estate, such as home equity mortgages and home loans.

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