Consumer credit falls for 8th month
Longest streak of declines since Federal Reserve started keeping records 56 years ago.
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NEW YORK (CNNMoney.com) -- Consumer credit fell in September for the eighth straight month, the longest streak of declines since the Federal Reserve started keeping records in 1943.
Total consumer borrowing fell a seasonally adjusted $14.8 billion, or 7.2%, to $2.456 trillion in September, according to the Federal Reserve.
Economists predicted a decline in total borrowing of $10 billion in September, according to a consensus survey from Briefing.com. August saw a downwardly revised $9.9 billion decrease in total consumer borrowing.
September's total borrowing is down 7.3% from last year. Last August, consumer credit contracted for the first time since January 1998.
"These are not minor declines we've seen over the past few months," said Sean Maher, economist at Moody's Economy.com. "Credit is falling at a fairly rapid pace."
Revolving credit, which includes credit card debt, tumbled $9.9 billion, or 13.3%, to $898.9 billion. That's a 10% decrease from the previous year.
Nonrevolving credit, which includes car and student loans, fell by $4.9 billion, or 3.7%, to $1.567 trillion. That's a 3.8% drop from last year.
The decline in nonrevolving credit is "really surprising, given the surge of vehicle sales driven by the Cash for Clunkers program," Maher said.
Vehicle sales typically show up on balances the month after they were made, and many of the Cash for Clunkers purchases took place in August, Maher said.
As the economy continues to shed jobs by the thousands, the credit crunch is being compounded. Cash-strapped consumers have a tough time paying their bills and are more reluctant to take on additional debt.
Indeed, Maher said he thinks the decline is largely due to consumers saving the cash they have and moving away from reliance on credit to pay their bills.
Another factor is that banks have tightened lending standards because of a heightened default risk, so consumers see less credit available to them.
Earlier Friday, a separate report showed the national unemployment rate rose much more than expected in October, to 10.2%. Economists had predicted 9.9%, and the October data marked the first time since 1983 that the rate crossed 10%.
Unemployment will likely peak in the second quarter of 2010 and will start to decline in June, Maher predicted.