Borrowing by American consumers tumbled for the third month in a row, falling by $6.6 billion to $2.562 trillion as the faltering US economy continues to pressure households to curb spending.
Figures released by Federal Reserve, the US central bank, Friday suggest nearly twice the expected drop in December marked a decline from a downwardly revised $2.569 trillion in November.
Economists were expecting consumer credit to fall by $3.5 billion in December, according to a consensus of economists gathered by Briefing.com.
As banks tighten lending standards for consumer loans because of heightened default risk, consumers are finding it tougher to secure credit and are also using less credit. And the trend is likely to continue this year, according to Mark Vitner, senior economist at Wachovia cited by CNNMoney.com.
"Right now, consumers are worried about losing their jobs, and their incomes are off, which is pulling down credit use," said Vitner. "I think consumers are trying to pay down debt, and until unemployment rolls over, folks will be striving to live within their means."
In August, a decrease in non-revolving lines of credit in auto loans prompted consumer credit to decline for the first time since January 1998.
After a rebound in September, consumer credit resumed its decline in October as lending nearly came to a standstill with credit market gauges showing historically tight conditions.
The annual rate of consumer borrowing fell by 3.1 per cent in December, an improvement over the revised 5.1 per cent drop in November.
Credit card borrowing, or revolving debt, fell at an annual rate of 7.8 per cent. Non-revolving borrowing, including student and auto loans, sank by 0.2 per cent on an annual basis.
In fact, during the fourth quarter of 2008, some 60 per cent of lenders tightened standards on credit card loans and 65 per cent said they had tightened standards on other consumer loans, according to the Fed's most recent survey of senior loan officers.
GDP, the broadest indicator of economic health, contracted 3.8 per cent in the last three months of 2008. Earlier Friday, the Labour Department reported that employers cut 598,000 jobs from U.S. payrolls in January, bringing the unemployment rate up to 7.6 per cent.