Tuesday, April 7, 2009

Americans saying "no" to credit card spending by record percentage; now for the bad news -- less spending = less product purchased, more layoffs

Here's the good news: Americans by a record percentage in February put away the credit card. Good for them.

Now for the bad news: This breaking of a bad habit by a record percentage means a lot less spending is going to show up in first quarter corporate earnings and will mean more layoffs for the remainder of this year. That also means bad news for the direction of the stock market.

AP reports:

WASHINGTON (AP) — Consumer borrowing plunged in February at a 3.5 percent annual rate, more than analysts had expected, as Americans cut back their use of credit cards by a record amount.

The Federal Reserve said Tuesday that consumer borrowing dropped at an annual rate of $7.48 billion in February from January, which amounts to a 3.5 percent annual rate of decline. Wall Street economists expected borrowing to slide by only $1 billion, according to a survey by Thomson Reuters.

The decline was led by a record drop in borrowing on credit and charge cards, which fell at an annual rate of $7.8 billion, or 9.7 percent. That is the sharpest drop in dollar terms since federal records began in 1968, and the steepest percentage fall since 1978.

The report shows consumers reluctant to increase spending as employers cut millions of jobs in a recession.

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