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FTC Credit Report Shows Quiet Holiday for Americans

By Faye Mergel
Published: Wednesday, November 11th, 2009

It seems that the streets will not be as busy as they used to be during previous Holiday seasons, or at least that is what the consumer credit report the Federal Reserve says. Released earlier this week, the monthly consumer report for October reveals that people are less likely to travel or shop during this year’s Holidays.

FTC Credit Report Shows Quiet Holiday for AmericansAccording to the report, consumer activity went down at an annual rate of six percent during the third quarter of 2009. That means the total US consumer borrowing went down by $14.8 billion in September. Revolving credit, which is the largest form of credit that Americans make, fell $9.9 billion.

The consumer credit report further reveals that banks still hold majority of outstanding consumer debt at 34 percent while finance companies hold 21 percent of it.

After reaching its peak for decades in the fourth quarter of 2008, consumer credit has fallen constantly every quarter since. But market specialists note that the decline was the biggest since July this year and is way bigger than the projected $10 billion drop.

Retailers are alarmed by the trend of consumer behavior, with spending expected to remain at low levels this month until the end of 2009.

Analysts say the first wave of recession last year was caused by debt and mortgage crisis in the financial sector but they attribute its second wave to terrible holiday sales which came just two months after the height of recession.

Retailers and small business owners make up a major portion of the economy. Experts say with the retail sales going so badly last year, hundreds of thousands of workers were laid off along with thousands of stores that were shut down. They add that the true effect of the poor retail season this year will not be felt until the first quarter of 2010. But they warn retailers to brace themselves since the numbers presented by the consumer credit report do not show healthy signs for the US economy.

With consumers struggling to improve or at least keep their rating, it is not hard to see why they are trimming down on debt so much. Banks, which earlier this year began tightening lending standards because of recession and the new credit rules, have become pickier on who extend credit to.

Economists fear that the cycle of high employment rates and low consumer spending will continue and consequently worsen the already wracked United States market. However, they predict that unemployed consumers may soon get their job back soon.  Assuring consumers, they said the growth in gross domestic product (GDP) is a sign that more workers will be needed to sustain present improvements.

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