Consumer Credit Outstanding Continued Nosedive in June

American consumers and banks teamed up to drive down total consumer credit outstanding in June and the second quarter, according to numbers released by the Federal Reserve late Friday. It was the third straight quarter of significant declines in consumer credit, especially among credit card debt.

The Fed said that consumer credit outstanding contracted at a 4.9 percent annual rate in June, or by $10.3 billion. It was the fifth straight monthly decline. The government report, which tracks all consumer debt not backed by real estate and commonly called the G.19, showed declines roughly double of what analysts were expecting.

Revolving credit, principally credit card accounts, led the declines, dropping at an annual rate of 6.8 percent. Non-revolving debt – like that found in auto, student and personal loans – contracted at an annual rate of 3.8 percent in June.

For the second quarter, revolving credit decreased at an annual rate of 8.2 percent. Over the past three quarters, revolving credit has declined 7.86 percent. Overall consumer credit has declined 4 percent.

Both consumers and banks have contributed to the declines. As unemployment has rapidly expanded since the end of the third quarter of 2008, Americans have cut back on their spending and increased their savings rate. At the same time, banks have slashed available credit to consumers and small businesses. Credit scores have also been readjusted to put more emphasis on outstanding credit balances, giving consumers further incentive to pay off debt.

Analysts do expect a significant uptick in consumer credit for July, as the impact of the government’s “Cash for Clunkers” program is felt in non-revolving credit.

At the end of June, total consumer credit outstanding was $2,502 billion, down from its peak of $2,579 billion at the end of the third quarter of 2008. Credit card debt outstanding accounted for $917 billion, down from its all-time high of $973.5 billion at the end of September 2008.