U.S. Consumer Credit Decreased $9.5B in August

By Vincent Del Giudice - Oct 8, 2011 2:38 AM GMT+0700

Consumer credit in the U.S. unexpectedly dropped in August by the most in over a year.

The $9.5 billion decrease followed an $11.9 billion increase the previous month, the Federal Reserve said today in Washington. Non-revolving credit, which includes student loans and financing for automobile purchases, slumped by the most in three years.

Decreasing credit shows American households are either continuing to pay down debt or lack the confidence to boost spending on non-essential goods. A thawing of credit and a faster pace of purchases may require bigger gains in income and payrolls.

“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,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before today’s report.

The median forecast of 33 economists surveyed by Bloomberg News called for an $8 billion increase in consumer credit in August. Estimates ranged from gains of $2 billion to $10.9 billion.

Employers added more jobs than forecast in September, another report today showed. Payrolls climbed by 103,000 workers after a revised 57,000 gain the prior month that was more than initially estimated, the Labor Department said.

Shares Drop

U.S. stocks rose, weathering a midday selloff triggered by credit downgrades of Italy and Spain, as stronger-than-forecast jobs growth tempered concerns that the world’s largest economy will relapse into a recession. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,167.87 at 3:37 p.m. in New York.

Non-revolving debt, including educational loans and loans for autos and mobile homes, dropped by $7.23 billion in August, the biggest decrease since Aug. 2008. Revolving debt, which includes credit cards, fell by $2.27 billion. The report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

The drop in lending may not have been repeated last month. Auto purchases ran at a 13.04 million annual rate in September, up from a 12.1 million pace the prior month, according to industry statistics. August was down from a 12.2 million pace a month earlier.

Auto Sales

General Motors Co., Chrysler Group LLC and Nissan Motor Co. increased sales. GM deliveries rose 18 percent from a year earlier to 218,479 cars and light trucks, Detroit-based GM said Sept. 1. Chrysler sales advanced 31 percent and Nissan increased 19 percent.

“Weak economy or not, non-revolving credit is going to bounce back in September,” said Rupkey.

Consumer spending rose at a slower pace in August as income dropped for the first time in almost two years, according to Commerce Department statistics issued Sept. 30. Purchases climbed 0.2 percent after a 0.7 percent increase the prior month. A 0.2 percent advance in prices wiped out the gain in so- called nominal, or unadjusted, spending.

Americans are making progress mending their balance sheets.

David Nelms, chairman and chief executive officer at Discover Financial Services, said on a Sept. 22 conference call that there is “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.”

The credit-card issuer and payments network reported its third-quarter profit advanced as loan-loss provisions declined.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net