Consumer credit drops $3.6B in October
Federal Reserve says borrowing by consumers fell at an annual rate of 1.6% in the month.
NEW YORK (CNNMoney.com) -- Consumer borrowing unexpectedly decreased in October as the weak economy continued to weigh on household budgets.
The Federal Reserve said Friday that consumer borrowing fell by $3.6 billion in October to $2.578 trillion from an upwardly revised $2.581 trillion in September.
The annual rate of consumer borrowing fell by 1.6% in the month. In September, the annual rate grew by 3.1%.
Credit card borrowing, or revolving debt, declined at an annual rate of 0.2%. Non-revolving borrowing, including student and auto loans, fell $3.4 billion dollars, or 2.5% on an annual basis.
Economists were expecting consumer credit to have increased by $1.5 billion in October, according to a consensus of economists' estimates gathered by Briefing.com.
Declines in consumer borrowing "don't happen very often," said Bob Brusca, economist at Fact and Opinion Economics in New York.
In August, consumer borrowing decreased by $6.3 billion, or 3% on an annual basis. That was the first time borrowing had declined since January 1998, and was due mostly to a sharp drop in auto loans.
"Consumers are feeling the pinch," Brusca said. "They're strapped for cash and starved for credit."
He pointed out that weak sales have taken a toll on auto loans and declining home values have deterred homeowners from borrowing against their property.
"Consumers don't feel they have the asset power to borrow against," he said. "They have no prospect for a raise and may not have a job."
The pullback in borrowing comes as American consumers struggle with a dismal job market and an economy that is in recession.
A report from the Labor Department showed Friday that the economy lost 533,000 jobs in November, the largest monthly job loss in 34 years. So far this year, the economy has lost nearly 2 million jobs.