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For the fifth month in a row, consumers paid down their credit cards and other debt, as the worldwide recession continues to drive conservative financial behavior.
According to the Federal Reserve, outstanding consumer debt fell $10.3 billion (4.9%) to $2.5 trillion in June. Analysts expected a decline of only $4.7 billion, making the plunge unexpected -- and nearly twice the $5.4 billion by which consumer debt fell in May.
This move is likely to stabilize household situations, as consumers try to minimize the cost to service debt and cut obligations in case they get caught up in a future wave of layoffs, but these efforts at responsibility could result in a slower economic recovery. Consumer spending, which accounts for 70% of economic activity, is the key to a broad change in economic conditions, and paying down debt isn't going to help.
There's some good news in all this, though.
When consumer spending does ramp up, which should happen eventually, it's less likely to be fueled by expensive consumer credit, which means the growth will be sustainable -- and real. A borrowed recovery merely sets us up for another fall, making a slower but stronger trajectory far more promising.
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Reader Comments (Page 1 of 1)
8-10-2009 @ 11:07AM
Mike O said...
I'm one of the many who are in the process of de-leveraging. If all goes according to plan, I will have zero credit card debt by January 2010.
It will be nice to have my money working FOR me for a change.
8-10-2009 @ 5:30PM
Evelyn Guzman said...
It is good news to know that consumer debt has gone down and that consumer spending has reduced as well. This might bode well to the personal finance but with lower spending, companies will not do well and may have to close down or cut down on services which will affect the economy negatively.
Evelyn Guzman