Consumer Credit Drops Again

Consumer Credit in U.S. Fell by Most in Three Months (Update3)

April 7 (Bloomberg) -- Consumer credit in the U.S. declined in February more than anticipated, indicating Americans are reluctant to take on more debt without further improvement in the labor market.

Borrowing fell $11.5 billion, the most in three months, after a revised $10.6 billion January gain that was twice as much as initially estimated, the Federal Reserve said today in Washington. The decline in the February measure of credit card debt and non-revolving loans was worse than the lowest estimate in a Bloomberg News survey of 34 economists.

The drop was the 12th in 13 months and shows consumer purchases, which account for about 70 percent of the economy, will be limited until households become more optimistic about the recovery. Confidence to finance spending may be restored if employment keeps rising after a March payroll gain that was the biggest in three years.

“I don’t think we’re going to have the credit-fueled spending we had in the past,” said Gary Thayer, chief macro strategist at Wells Fargo Advisors LLC in St. Louis. “A lot of consumers are deleveraging. They see excess borrowing as threatening.”


This is a huge deflationary signal. As borrowing declines, total debt declines and therefore the total supply of money and credit shrinks. As long as the Fed does not pull the turbo Quantitative Easing lever, we have a deflationary scenario continuing to unfold.


  1. This is probably the most interesting signal out of the U.S. In fact, it creates an interesting economics test: Canada's credit is growing (albeit slowly) while U.S. credit is contracting -- what will be the impact of this credit creation on the inflation rate of these two countries?

    Inquiring minds want to know

  2. In my view, deflation is already hard at work in the US as credit continues to contract. Canada lags about 1 to 2 years behind the US in both the property market and credit market in my estimate. My expectation is that Canada will also lapse into deflation in the not too distant future as our credit contracts as banks rebuild equity and as the overleveraged consumer starts to default.


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