Consumer Debt Falls for Fifth Straight Month - Personal Finance * US * News * Story - CNBC.com

Consumers Cut Back on Debt For the Fifth Straight Month
Published: Friday, 7 Aug 2009 | 3:46 PM ET

By: AP and Reuters

The Federal Reserve says consumers paid down their credit cards and reduced other debt in June for the fifth straight month as they rebuild savings battered by the recession.

The Fed says Americans cut their outstanding consumer debt by $10.3 billion, or 4.9 percent, to $2.5 trillion in June.

The cut is much steeper than the $4.7 billion analysts expected and larger than the $5.4 billion drop in May.

Non-revolving credit, which includes closed-end loans for big-ticket items like cars, boats, college education and holidays, fell $5.04 billion, or at a 3.8 percent annual rate, to $1.59 trillion.

Revolving credit, made up of credit and charge cards, dropped $5.25 billion, or at 6.8 percent rate, to $917 billion.

Rising unemployment, declining home values and reduced stock portfolios have spurred Americans to spend less and save more.

"The current ratio of consumer credit to disposable personal income is hovering near all-time highs. This suggests that future consumer credit could be throttled by the slowdown in disposable income and the weak labor market," wrote economists at Action Economics in a research note.

That could slow any economic recovery, as consumer spending accounts for 70 percent of economic activity.

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