2009 was a very rough year for American consumers. With unemployment at a 26 year high, the majority of Americans have severely curtailed their spending, and have slashed their use of credit cards. Consumer credit dropped a record $17.5 billion in November, as spending stopped, and credit card companies booted customers, raised rates and lowered credit limits.
The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The figures track credit card debt and non-revolving loans, such as those to buy autos.
A labor market that's shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.
"Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early '80s recessions."
The series of 10 straight declines in consumer credit was the longest since record-keeping began in 1943.
Credit card companies are also raising interest and penalty rates, and making other anti-consumer moves to get ahead of a new federal law that regulates credit card company practices. Be sure to read carefully anything you get from your credit card issuer in the next several months.
