American consumer credit fell 0.9% in July, the second largest monthly fall since World War II.
The $21.6 billion (£13.1 billion) drop was more than five times larger than the $4 billion anticipated by economists as consumers moved to repay debt swifter than expected.
In relative terms, consumer credit contracted by 4.2% over 12 months, the biggest yearly fall since the war.
Appetite for credit contracted rapidly after the extent of the financial crisis became clear last year. American consumers acted to start reducing their debt liabilities from July and the latest figures show this process is far from abating.
In a note from Lombard Street Research, Gabriel Stein, the firm’s chief economist, says the latest data shows “that the US household deleveraging process is alive and kicking”.
The fall in credit suggests that the Federal Reserve’s stated objective to use extraordinary monetary and fiscal stimulus to boost credit supply is failing to have the trickle-down effect it might have envisaged. It also posits the possibility that America’s economic recovery may be even more subdued than initially predicted.
“We had said that over the four quarters to Q2 2010 we anticipated output growth of 1%,” says Stein, “but that was predicated on a return to growth this quarter which is looking uncertain.”
Although only the figures for July, the continued process of deleveraging by consumers will worry people looking for GDP growth to be supported by consumer spending.
“One has to be careful looking at one month figures but they certainly don’t give us much hope,” Stein says. “It does mean weaker growth, but of course it is the right thing for consumers to be doing.”