CM analysts note that the New York Fed's Household Debt and Credit Report shows that consumer debt fell at a $72 billion annual rate in the second quarter, following three quarters of modest debt growth. The decline was driven by a whopping $328 billion decline in mortgage debt. The analysts conclude that consumers in the current cycle are reluctant to amass debt and are increasingly sensitive to the cost of credit. As a share of disposable personal income, consumer debt has dropped to 89.7 percent, down from 115 percent just six years ago.
The CM analysts observe that since nominal retail sales in July were flat month over month and real sales (i.e. inflation adjusted) were down 0.1 percent, no one should look to the consumer as the driver of new growth for the U.S. economy. Household spending is being restrained by consumers' reluctance to lower their savings rate and borrow as excessively as they did in the past.
The analysts note that during the last expansion, 2003-07, total consumer debt increased $1.079 trillion per year. So far in this expansion, consumer debt has declined $156 billion per year!