In March, the levels of overall consumer debt in the United States had shrank for the second straight month. The proposed reason is that greater numbers of Americans are simply reducing their expenses on their own or were forced to by their lenders and creditors.
While it may be argued that consumers really do need a break from the non-stop spending in order to get a handle their own financial circumstances, the larger picture is different. In fact, the new turn toward frugality might keep the economy from making real strides towards recovery and growth.
A Federal Reserve report put issue in clearer terms. It said that consumer credit dropped by a staggering $11.1 billion in March. This was almost triple the forecasted amount and was noted as being the largest amount since the records were began back in 1943. The total amount was $2.55 trillion.
The report also noted that the 5.2% reduction in the annual rate was probably the largest shift since 1990. Estimates for February were also larger than anticipated by financial experts, with a credit reduction of about $8.1 billion.
Comparing March and February figures on outstanding revolving debt, the report stated that there was a drop of 6.8% in the annual rate in March, which made it slower than the 12.1% for February. Overall, revolving debt has been reduced for two straight quarters.
On the other hand, non-revolving debts like those for auto loans, increased by a mere 0.9% in the first quarter of 2009, but then dropped 4.2% in March after a quick expansion in February of about 1.2%. There are indications that the March drop may be indicative of a wider reduction in consumer credit.
In a survey conducted by the Federal Reserve most of the banks listed were still establishing more restrictive standards for credit cards-even in the last few months-making it more difficult for potential cardholders to get credit cards while also making reductions in the credit lines of current users.
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