The Federal Reserve recently reported that consumers ratcheted back their credit by $21.6 billion from June. This was the most on record dating back to 1943. Demand for nonrevolving credit used to finance cars, vacations and other things fell by $15.4 billion and revolving credit (credit cards) declined by $6.1 billion in July. These statistics highlight a continued trend that consumers are spending less as they cope with the impact of the recession.
This report comes with a Good News, Bad News story line. The fact that consumers are reducing their credit spend is a good thing. This correction must happen for the economy to get to a better place. Over the last years, consumers have kept piling on credit spend to fuel a lifestyle that was really beyond the means of many. As the country fell into a recession, consumers with high debt were the ones to be first exposed. With a reduction in consumer debt comes less spending to fuel the economy and that’s a bad thing. Consumer spending accounts for 70% of the economic growth. This reduction in credit demand is also being fueled by continuing job losses. With these insights, lets hope that our officials in Washington understand that incenting job growth; specifically with small business is where the game needs to be played. People need to go back to work and begin to get confidence in the economy. Only then will we see consumer spending start to drive the economic engine. Imagine where we could be - consumers working and spending again….but also saving more and managing their debt load more effectively. Lets hope we learn a few things from this recession. That consumers are serious about better managing their credit spend and that the government knows where to spend our stimulus dollars. Together, this is a powerful combination.
This report comes with a Good News, Bad News story line. The fact that consumers are reducing their credit spend is a good thing. This correction must happen for the economy to get to a better place. Over the last years, consumers have kept piling on credit spend to fuel a lifestyle that was really beyond the means of many. As the country fell into a recession, consumers with high debt were the ones to be first exposed. With a reduction in consumer debt comes less spending to fuel the economy and that’s a bad thing. Consumer spending accounts for 70% of the economic growth. This reduction in credit demand is also being fueled by continuing job losses. With these insights, lets hope that our officials in Washington understand that incenting job growth; specifically with small business is where the game needs to be played. People need to go back to work and begin to get confidence in the economy. Only then will we see consumer spending start to drive the economic engine. Imagine where we could be - consumers working and spending again….but also saving more and managing their debt load more effectively. Lets hope we learn a few things from this recession. That consumers are serious about better managing their credit spend and that the government knows where to spend our stimulus dollars. Together, this is a powerful combination.
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