Friday, November 5, 2010

Consumer Credit Up in September Following 7 Months of Declines

The Federal Reserve reported that consumer credit expanded at an annualized pace of 1.1% in September to total $2.41 trillion. This was the first growth in consumer credit following seven consecutive months of declines.

The nonrevolving portion of consumer credit drove the expansion in credit. Nonrevolving credit grew at annual rate of 7.9% in September to $1.60 trillion. Nonrevolving credit has been up in three of the last four months.

Revolving credit fell at annual rate of 12.1% in September to $813.9 billion. This is the 25th consecutive monthly decline in outstanding revolving credit. Revolving credit is 16.4% below its August 2008 peak of $973.6 billion. The decline in revolving credit is directly related the elevated unemployment rate; households continue to reduce borrowings in an effort to create stronger balance sheets.

James Chessen, ABA's Chief Economist, commented, "The consumer credit numbers show households were still sitting on the sidelines and hesitant to spend money in September. The positive side, however, is that consumers are regaining control of their finances by saving more and spending less. This will help build a base where consumers will feel comfortable re-entering the game."

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