By Utta Von Nuremburg

WASHINGTON (MNI) – The total amount of consumer credit outstanding
in July is expected to continue its steady rate of decline, weighed down
by a combination of tighter lending standards and efforts by households
to shrink their debt levels.

U.S. consumer credit data for July will be released by the Federal
Reserve Wednesday afternoon, and respondents in a Market News
International survey of economists predict a drop of $3.5 billion, after
it fell $1.3 billion in June. If expectations are met, this will be the
sixth straight month total consumer credit has declined.

According to Dana Saporta, director of Economics at Credit Suisse,
the decline in consumer credit is both voluntary and involuntary.

“Households are deleveraging to pay down their debt or filing for
bankruptcy to obtain relief from their debt,” she said, “in combination
with tighter consumer lending standards, the data is being driven down
lower.”

The bulk of the drop can be expected from the revolving credit
figure, which has fallen for 21 consecutive months since October 2008,
due to sluggish job growth and slower-than-anticipated pace of economic
recovery. The Consumer Credit report for June showed that revolving
credit dropped 6.5% ($4.5 billion) to $826 billion.

Despite expectations for a fall in revolving credit, retail sales
excluding motor vehicles rose 0.2% in July. The ex-autos retail sales
figure can be used as an indicator for revolving credit because it
encompasses mostly discretionary spending.

Consumer confidence, however, fell from 54.3 in June to 51.0 in
July, suggesting consumers lack optimism on the state of the economy and
their ability to secure as well as retain good jobs.

Offsetting this decline, nonrevolving credit — which includes
loans for autos, tuition and vacations — is likely to post another
monthly gain. In June, nonrevolving credit rose 2.4% ($3.1 million) to
$1.6 billion, posting its second consecutive monthly rise.

Of note, new orders for manufactured durable goods in July
increased 0.4% ($0.7 billion) to $193.0 billion. This increase followed
two consecutive monthly decreases including a fall of 0.2% in June.

Durable goods are by definition products that have a life
expectancy of at least three years — including autos, computers, and
machinery — and as such can be expected to contribute to the rise in
July’s nonrevolving credit figure.

–Utta Von Nuremburg is a reporter with Need To Know News In Washington

** Market News International Washington Bureau: 202-371-2121 **

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