Consumers Avoiding Debt
Newly released data from the Federal Reserve reveals some very interesting information with regards to consumer psychology. As a nation we have been drunk on credit for decades now. And now, over the course of about the past three years actually, the hangover has set in.
Since September 2008, American’s credit card debt has fallen a staggering $86.2 billion. That’s when credit card debt reached its peak of $975.2 billion. The decline has been steady and sure ever since then over a record 12 straight months and counting.
It can be chalked up to a combination of fears by both consumers, small businesses and the banks and credit card companies that issue credit. As David Wyss, the chief economist for Standard & Poor’s stated, “People are getting more cautious about borrowing, and banks are getting more cautious about lending..”
Unemployment Plays a Huge Role
As the unemployment rate goes, so goes the credit markets. Unemployment has now topped 10% nationwide, its highest level in 26 years. Unemployment and the use of credit cards go hand-in-hand, for rather obvious reasons.
While most economists agree that the economy is finally starting to recover, it’s apparently a jobless recovery. And that’s really bad news. It’s not much of a recovery at all actually.
Typically the unemployment rate lags economic recoveries so only time will tell if in fact we really have bottomed out and things are beginning to improve.
In the meantime, consumers will continue to focus on reducing their debt as other Federal Reserve reports have indicated. One such report shows that household debt has contracted for the fourth consecutive quarter.
When times are tough we tighten our belts and that’s what we’re seeing in a big way.
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