A report yesterday by the Federal Reserve showed that U.S. consumers shed some of their debt for the fourth month in a row in May. Total seasonally adjusted consumer debt fell $9.15 billion, or at a 4.5% annualized rate, in May to $2.42 trillion. Economists expected a decline but of only $3 billion. Of course, this data series tends to be very volatile from month to month. For example, the April consumer credit was revised sharply lower to a decline of $14.86 billion compared with the initial estimate of a gain of $1 billion. The decline in May was led by revolving credit-card debt, which fell $7.32 billion or 10.5%. This is the 20th straight monthly decline in credit card balances. Non-revolving debt such as auto loans, personal loans and student loans, fell $1.82 billion or 1.4%. Since the collapse of Lehman Brothers in September 2008, consumer credit has declined in 18 out of the past 20 months.
While consumers reducing debt is a long-term positive for the economy, it reduces short-term consumer spending and impacts economic growth.
