At 3 p.m. on October 7 the Federal Reserve reported that, as expected, consumer credit fell for the seventh consecutive month in August..
The drop of $12 billion was even worse than the consensus prediction going into the report of a $10 billion drop.
If you’re looking for a bit of sunshine in these numbers, I’ve got two isolated rays for you: First, the drop wasn’t nearly as bad as the record $21.6 billion plummet in July, and second, since these numbers lag so badly maybe things aren’t as bad now as they were then. Although I wouldn’t bet on it, since the biggest part of the August decline came in credit card borrowing and other data shows that credit in that sector continuing to decline.
This is the first time consumer borrowing has dropped for seven consecutive months since 1991. In severity, however, this plunge beats the 1991 drop cold. This slide has already seen consumer credit contract by 3.6% or $92 billion. The 1991 drop saw a contraction of just 1.2%.
It’s going to be hard to get a sustained recovery until consumer credit starts to expand. That looks a way off.