U.S. consumers unexpectedly cut back on their borrowing in October as the economy sunk deeper into recession.
The Federal Reserve reported Friday that consumer credit fell at an annual rate of 1.6 percent in October. That compared with a 3.1 percent growth rate logged in September, and marked the deepest cutback since August.
Economists expected consumers to boost their borrowing by around $2 billion in October from the previous month. Instead, consumer debt dropped by $3.5 billion to $2.58 trillion.
The Fed’s measure of consumer borrowing does not include any debt secured by real estate, such as mortgage or home equity loans.
The cutback in October was led by a drop in demand for non-revolving credit used to finance cars, vacations, education and other things. That type of credit fell at a rate of 2.5 percent, compared with a growth rate of 3.2 percent in September.
Consumers’ appetite for revolving credit, which is primarily credit cards, declined at a rate of 0.2 percent in October, down from a 3.1 percent growth rate logged in September.
The economy jolted into reverse in the summer, with economic activity shrinking at a 0.5 percent pace. That reflected a massive pullback by consumers.
With nest eggs cracking and jobs disappearing at an alarmingly fast clip — the nation’s unemployment rate climbed to a 15-year high of 6.7 percent in November — economists are expecting further retrenchment by consumers in the current October-December period.
That’s figuring prominently into some predictions that economic activity could contract at a pace of between 5 percent and 6 percent in the current quarter.
Consumer spending accounts for more than two-thirds of all economic activity and is a major factor shaping how the economy fares. The country has been in a recession since last December, a panel of experts declared earlier this week.