Consumer Credit Freefall

BusinessWeek details:

Consumer borrowing in the U.S. dropped in May more than forecast, a sign Americans are less willing to take on debt without an improvement in the labor market.

Borrowing that’s increased twice since the end of 2008 shows consumer spending, which accounts for about 70 percent of the economy, will be restrained as Americans pay down debt. Banks also continue to restrict lending following the collapse of the housing market, Fed officials said after their policy meeting last month.

“The trend in consumer deleveraging is clear as credit has declined 11 of the last 13 months,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a note to clients. “Credit card debt continues to be paid down at a heady pace.”

The key in the chart below is the blue line (total). Notice that besides a blip in the early 90's overall levels of consumer debt went one direction for 60+ years and we have never seen both revolving (i.e. credit cards) and non-revolving debt decrease (let alone crash) simultaneously.

Source: Federal Reserve