Steep fall in US consumer credit in August

American consumer credit saw its steepest decline in a year in August, according to the Federal Reserve, reflecting consumer resistance to take on more debt.

Consumer credit fell by $9.5 billion in August, following a $11.92 billion gain in the previous month. Revolving credit – measuring credit card usage – fell by $2.27 billion in August (on the back of a $3.56 billion decline in July).

Non-revolving credit, comprising largely auto and student loans, dropped by $7.23 billion, the sharpest fall since August 2008. It rose by $15.48 billion in July.

The declining credit reflects the trend among American households of either reducing their debt or reluctance to spend on non-essential goods. The downgrade of the US credit rating, combined with the crisis in the Eurozone area caused by debt problems, continues to weaken consumer sentiment in America, say analysts.

A report by the American Bankers Association (ABA) indicates consumer delinquencies rose during the second quarter, with nine of the 11 categories reflecting higher defaults.

The ABA's Consumer Credit Delinquency Bulletin points out that closed-end home equity loan delinquencies rose from 4.12 per cent to 4.38 per cent, while open-end home equity lines of credit delinquencies went up from 1.8 per cent to 1.91 per cent. Similarly, closed-end property improvement loan delinquencies were up from 1.02 per cent to 1.07 per cent.