December 8, 2005
Banks and other lenders got a bit of bad end-of-the-year news from the Federal Reserve Board -- American consumers are borrowing less money. The Fed reports new consumer debt plunged by a record amount in October.
According to the report, borrowing fell by $7.2 billion at an annual rate, the biggest drop, in terms of dollars, on record. Most of the decline can be traced to the category of borrowing that includes car loans -- which plunged $5.6 billion at an annual rate.
With all the categories taken together, overall borrowing was down by four percent, the biggest one month drop in 15 years.
The numbers are more of a shock because analysts had predicted borrowing would increase to fuel ever-higher consumer spending. Besides bankers, the report may make retailers gloomy as well, since they have been counting on a binge of consumer holiday spending to give them a profitable year.
Economists should have had a tip-off that borrowing numbers would fall, when new car sales dropped in October, forcing U.S. carmakers to reprise their summer sales campaigns.
There are growing signs that consumers, already plucked nearly clean by 24% interest rates, sky-high credit card fees and usurious subprime mortgages, are wary of taking on any new debt.
