Tech & Biz

US Consumer Debt Falls For The 5th Consecutive Month

by peder.sande | August 7, 2009 at 02:39 pm

324 views | 24 Recommendations | 7 comments

On Friday the Federal Reserve has reported US consumers are no longer consuming. For the fifth consecutive month consumer debt fell, by $10.3 B. US consumer debt is estimated at $2.5 T. Analysts expected a $4.7 B reduction.

Outstanding U.S. consumer debt fell $10.3 billion, or 4.9% at an annual rate, to $2.5 trillion, the Federal Reserve said Friday. That's a much steeper cut than the $4.7 billion analysts expected, according to Thomson Reuters.

The reduction in debt is attributed to consumer sentiment, as well as compromised personal fiances due to the stock market bust. The US savings rate increased by 5.2% in Q2. While responsible consumption decreases the likelihood of economic booms and busts, a large decrease in consumer spending will stall economic recovery.

Market indicators have been labeled as a mix bag. Each giving different signals of recession and recovery. Today the US unemployment rate decreased to 9.4%, a positive sign for the US. These confounding results will continue to plague investors during Q3.

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A. Tran

at 16:22 on August 7th, 2009

It's a bit of positive news as far as the consumer debt and savings. Nevertheless, the job market remains soft hence it's unlikely that people will be spending and borrowing as if there's no tomorrow.

Rory Cripps

at 18:11 on August 7th, 2009

The reason why the consumer debt fell is because millions of Americans no longer (literally) have any money to spend. And for those Americans that contributed to the increased saving rate, I can only say this: Why the heck would you commit whatever disposable income that you had to financial vehicles that payed negative returns? You'd be much better off stashing your greenbacks in your mattresses for a rainy day!

frank luciano (not verified)

at 18:26 on August 7th, 2009

Paying off debt is a good start. But once its down, are we going to rack it up again on buying things we don't need with money we don't have ????

a211423

at 19:08 on August 7th, 2009

Having some debt is not necessarily a negative as long as you can pay your debtors. Most people don't have the cash to buy a car, hence, the obligatory car payment. Then there is "living within your means" argument. I have wondered if there is a formula for this, or is it simpler than that: Your expenses are less than your income. As a single mom raising three children in 80s and 90s, I could never save, except for a Christmas Club at my bank. We lived paycheck to paycheck, and somehow managed. The difference between then and now is that two parent households are suffering what single parent households have suffered for years.

Rory Cripps

at 19:10 on August 7th, 2009

frank luciano: Probably will do! You've got that right! BTW: Any relation to "Lucky"?

frank luciano (not verified)

at 19:34 on August 7th, 2009

Rory: no relation to Lucky.

i read somewhere that our spending behaviour was manipulated by diverting attention from what goods and services cost to the affordability of monthly instalments, resulting in a double whammy-steep prices and loan shark interest rates on credit cards etc.

Can someone tell me why, given relatively low interest rates, do banks charge rates on credit cards at effectively 30%+ annually ?

Rory Cripps

at 07:27 on August 8th, 2009

frank luciano: I guess because they can get away with it (charging high interest rates)! What's scary is that many business people think that's just fine. They're the same "free marketeers" that saw nothing wrong with selling bottled water at twenty dollars a pop to the victims of Hurricane Katrina. And if you sat down with some of these psychopaths and megalomaniacs that run American corporations, they'd tell you flat out and straight-faced that they see absolutely nothing wrong with gouging the consumer. Their allegiance is to their share holders--not to their country. Indeed, the merchant has no country. We need to keep our pitchforks sharp and at the ready . . . .