February 6, 2009

Consumer Credit Shows a New Trend

Perhaps unnoticed by many in the swirl of news comes some data of great import. AP reports a larger than expected (though not to readers of this blog) drop in consumer credit use:

"The Federal Reserve said Friday that consumer borrowing dropped...

"The weakness in December reflected a big 7.8 percent decline in the category that includes credit card debt..."

Full story here

The full significance of this drop is that this includes households that needed to increase credit use due to layoffs. This means those with jobs are cutting back on card use even more than the aggregate result.

For the entire 4th quarter, the Federal Reserve reports that

"Revolving credit decreased at an annual rate of 5-1/2%"

Starting in November, consumers cut credit card use sharply.

It was a sudden, step-like shift. Like someone hit a switch.

Sound familiar? Consider the analysis of exactly what happens in response to a housing price bubble here.

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