Ahead of the Bell: Consumer Credit

AP News
Posted: Dec 07, 2009 6:27 AM

Consumers likely borrowed less for a record ninth straight month in October as households faced tight credit conditions and unemployment that hit a 26-year high. A further decline in borrowing would be more evidence of weak consumer spending, making it harder for the economy to mount a sustained rebound.

Economists surveyed by Thomson Reuters expect consumer credit declined at an annual rate of $9.5 billion in October. The Federal Reserve is scheduled to release the report at 3 p.m. EST Monday.

Consumer credit fell at an annual rate of $14.8 billion in September, the biggest decline since July and the eighth straight drop.

Americans are borrowing less as they try to replenish depleted investments. Many are finding it hard to get credit as banks, hit by the worst financial crisis since the 1930s, have tightened lending standards.

In September, borrowing for revolving credit, including credit cards, fell at an annual rate of 13.3 percent, a record 12th consecutive decline. Borrowing for non-revolving loans, including auto loans, fell at an annual rate of 3.7 percent after a slight increase in August. The August gain reflected the surge in car sales as consumers rushed to take advantage of the government's Cash for Clunkers program.

While economists have worried for years about the low rate of U.S. savings, the concern is that consumers could derail the recovery if they sock away too much of their incomes. Consumer spending accounts for 70 percent of total economic activity.

Consumers have been reluctant to spend partly because the labor market has been so weak. But the government reported Friday that the unemployment rate actually improved in November, dropping to 10 percent, after hitting a 26-year high of 10.2 percent in October. Analysts cautioned that they expect the jobs recovery to remain subpar in coming months because the overall economy will continue to be lackluster.

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After consecutive gains, the nation's retailers reported a decline in sales in November, an ominous warning sign for the holiday shopping season.

According to sales results released last week, a diverse group of stores including Macy's Inc., Saks Inc., Abercrombie & Fitch Co. and Target Corp. posted sharper-than-expected sales declines in November.