Consumer Credit Fell As Effects of Foreclosed Homes Kept On
May 8th, 2009 by 
Joseph Smith
As the oversupply of forclosure homes for sale pushed the jobless rate to its highest point in decades, consumer credit declined in March by a record $11.1 billion, nearly 3 times more than expected and the highest level since credit records were compiled in 1943, according to a report from the Federal Reserve.
The current consumer credit level declined to $2.55 trillion, a drop of 5.2 percent at an adjusted annual rate, the biggest drop since 1990. Consumer credit in February also fell by $8.1 billion, again more than what was previously estimated.
The record decline reflects efforts by both lenders and consumers to strengthen their financial situations as the effects of foreclosed homes continue to have recessionary effects. Lenders have been tightening credit despite efforts by the Treasury and the Fed to boost credit available, such as purchasing over $200 billion banking shares.
Richard Yamarone, head economist of New York City-based Argus Research Corp., said record job losses translate to record drops in consumer spending and other economic activities. Since the recession began in December 2007, largely caused by an avalanche of foreclosed homes, 5.1 million jobs have been lost, with the current unemployment rate soaring to a record 8.5 percent.
Many economists expected consumer credit to decline in March by only $4 billion, the median resulting from the 26 estimates gathered by Bloomberg News in its survey of consumer activities during difficult times, largely caused by foreclosed homes. Estimates from the economists ranged from a decline of $7 billion to a $1.5 billion jump. The Fed’s forecast for consumer credit in February was a decrease of $7.5 billion.
In the first quarter, consumer spending, which comprises about three-fourths of the national economy, increased at an adjusted annual rate of 2.2 percent, the highest rise in 2 years. This rate is expected to increase as banks resume their lending activities and as some signs of recovery from the effects of foreclosed homes start to appear. Treasury Secretary Timothy Geithner has just finished the government stress tests for the largest U.S. banking firms, saying the results are reassuring.
Meanwhile, credit card debts declined in March by $5.41 billion. Mobile-home loans and auto loans also declined, pushing down the total of all non-revolving consumer loans to $5.69 billion. These declines reflect efforts by consumers to minimize their debt problems as they go through the recession largely caused by a glut of foreclosed homes.
