Home For The Holidays: Consumer Credit Falls Apart

It looks more and more like people will not be traveling or shopping this holiday season.

The Federal Reserve released its monthly consumer credit report which showed activity decrease at an annual rate of 6 percent in the third quarter of 2009.

Total US consumer credit fell $14.8 billlion in September. Of that, revolving credit fell $9.9 billion.

The survey shows that 34% of outstanding consumer credit is held by banks and 21% by finance companies.

After peaking in the fourth quarter of last year, consumer credit has fallen in each quarter since. The prospect that the trend will continue for the October through December period gives support to the notion that the holiday season will be a harsh one for retailers.

The second wave of the recession that is ending now was set off by terrible holiday sales last year which came just two months after the first wave caused by the financial crisis in the financial markets. Retail sales were so poor that hundreds of thousand of workers in the sector and business that supply the sector were laid off and thousands of stores closed.

The true effect of an awful retail season this holiday will not be clear until the first quarter of next year, but the new consumer credit numbers are not a healthy start.

Douglas A. McIntyre