USconsumers cut borrowing as unemployment starts to bite

US consumers slashed their borrowings by a record $21.6bn (&pound;13bn) in July, the Federal Reserve said last night.<br /><br />Total US consumer credit fell at a 10.4 per cent annual rate to $2.47 trillion, suggesting that households were shying away from credit amid rising unemployment.<br /><br />Analysts were expecting a much smaller $4bn decline in July after credit was reported as falling $10.3bn in June. The Fed has since downwardly revised June&rsquo;s estimate to a steeper $15.5bn decline.<br /><br />Consumer credit has now declined for six consecutive months, the first time this has happened since the period from June 1991 to December 1991.<br /><br />With an unemployment rate of 9.7 per cent, the highest in 26 years, and incomes falling, households have drastically cut back on spending. Consumer spending accounts for about two-thirds of US economic activity.<br /><br />Most of July&rsquo;s debt decline was seen in non-revolving credit, such as loans for cars and real estate. This type of debt fell by a record $15.4bn, or at an annual rate of 11.7 per cent, the largest rate of decline since January 1977.