Consumer credit plunged more than five times as much as forecast in July as banks restricted lending terms and job losses made Americans reluctant to borrow.
Consumer credit fell by a record $21.6 billion, or 10% at an annual rate, to $2.5 trillion, according to a Federal Reserve report released Tuesday. Credit dropped by $15.5 billion in June, more than previously estimated. The July drop was the sixth month of decline, the longest since 1991.
Economists had forecast consumer credit would drop $4 billion in July, according to the median of 31 estimates in a Bloomberg News survey. Projections ranged from declines of $12 billion to no change from the previous month. The Fed initially said consumer credit decreased by $10.3 billion in June.
Revolving debt, such as credit cards, fell by $6.1 billion in July, the Fed report showed.
Credit card defaults declined in July after breaking records for five straight months, according to Fitch Ratings statistics released Aug. 31. Chargeoffs on credit card debts fell to 10.55% as consumer credit quality showed "signs of life," Fitch said.
"Lenders are restricting access to credit because risk has increased, and that is intersecting with households' reducing their leverage," said Richard DeKaser, the chief economist at Woodley Park Research in Washington, whose forecast of a decline of $12 billion was the most pessimistic among economists surveyed.