WASHINGTON - Consumers slashed their borrowing in July by the largest amount on record as job losses and uncertainty about the economic recovery prompted Americans to rein in their debt.
Economists expect consumers will continue to spend less, save more, and trim debt to get household finances decimated by the recession into better shape. However, such action is a recipe for a lethargic revival, as consumer spending accounts for 70 percent of economic activity.
The Federal Reserve reported that consumers ratcheted back their credit by a larger-than-anticipated $21.6 billion from June, the most on records dating to 1943. Economists expected credit to drop by $4 billion.
Wary consumers and hard-to-get credit both factor into the scaled-back borrowing. But economists are split on which force is having the bigger influence.
In yesterday’s report, demand for nonrevolving credit used to finance cars, vacations, education, and other things fell by $15.4 billion, also a record decline. That 11.7 percent pace was on top of an 8 percent annualized decline in June.
