November ’09 Yields Dismal US Consumer Credit Figures
A record low figure of $17.5 Billion in consumer credit was recorded in November last year in the US.
This figure ballooned as unemployment rate increased to unprecedented levels, a 26-year high. Those who are unemployed were reportedly discouraged from lending as banks resorted to limited access for borrowers.
About 7.2 billion Americans have lost their jobs since the onset of the December 2007 recession which has contributed to a 70% decrease in consumer spending nationwide. Policy makers in the Fed explained that stricter bank borrowing standards and closure of credit accounts have restrained economic recovery.
Chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York Chris Rupkey, said that high unemployment rate is negatively affecting consumer confidence as more and more customers are paying down their credit card obligations.
Rupkey expressed: “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.”
In the stock market, the Fed reported that revolving debt (including credit cards) dropped by $13.7 billion in November 2009, which is reportedly a record figure. Moreover, non-revolving debt, which includes auto loans and mobile home debts, dropped by $3.8 billion.
In the United States, automobile sales increased in November displaying a seasonally adjusted annual rate of 10.92 million. This figure was 10.45 million last October.
In November, Commerce Department figures reported that Americans capitalized on holiday discounts as consumer spending consequently improved for the sixth instance since May 2009.
Fitch Ratings Managing Director, Michael Dean, admitted that the quality of a nation’s consumer credit has been under “considerable stress due to persistently weak labor market conditions.” A report released by Fitch on January 5 this year showed that credit card delinquencies are also at a record high level.
Brian T. Moynihan, Chief Executive Officer of Bank of America Corp., admitted that the company’s card defaults are “still very high.” He said that their loss rate on credit cards ranked highest among the 6 largest credit card institutions in the nation last November.
Moynihan said that the credit industry has suffered from allowing customers to over-borrow. He added that there is a need for their company to help lead the recovery effort while being “responsible lenders” at the same time.
Several banks have opted to introduce stricter credit standards, according to Fed Governor Elizabeth Duke. Smaller businesses have also felt the burden as strained business relationships with banks have subsequently affected loan portfolios.
In order that good lending relationships would be restored, Duke said that time will be essential for “other banks to establish and build such relationships.”
