Fresh calls for asset purchases after US consumer debt shrinks

Ben Southwood
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US CONSUMER credit shrank in July, the Federal Reserve revealed last night, the first fall for nearly a year.

The change surprised analysts and gave yet further impetus to the calls for another programme of asset purchases.

Driven by Americans paying off credit card debt, consumer credit shrank by nearly $3.3bn (£2.1bn) in July, compared to Wall Street expectations that credit would grow $9.1bn, as recorded in a Reuters poll.

This came from a $4.8bn drop in revolving credit – which includes credit card debt – and a $1.6bn increase in non-revolving credit.

Except for a few blips, including August last year, credit has been expanding since the beginning of the recovery after the financial crisis, and some analysts are worried that July’s contraction may foreshadow further economic slowdown.

And given the Fed’s commitment to stand in if the economy did not improve significantly, another raft of poor-looking data will only add to the speculation that a third round of quantitative easing is on its way.