U.S. consumer credit unexpectedly falls $3.28 billion

Consumer borrowing in the U.S. unexpectedly decreased in July for the first time in almost a year, restrained by a second straight decline in credit-card debt.

The $3.28 billion drop followed a revised $9.8 billion jump the previous month that was bigger than first estimated, the Federal Reserve said today (Sept. 10) in Washington. Economists projected a $9.2 billion rise, according to the median forecast in a Bloomberg survey.

Revolving credit, which includes credit card spending, decreased $4.82 billion, the most since April 2011.

The drop in credit-card borrowing coincides with a slowdown in hiring this year and a rise in consumer pessimism that indicate households are wary of taking on debt.

Employers added fewer workers to payrolls than forecast in August, while a gain in average hourly earnings from a year earlier matched the smallest increase since records began in 2007.

“Households are definitely still in deleveraging mode, they’re hesitant to take on new debt,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “I think credit card debt is going to be flat to up slightly, and mortgage balances are still falling.”

Estimates in the Bloomberg survey of 37 economists ranged from gains of $5 billion to $15 billion after a previously reported June increase of $6.46 billion.

Today’s consumer credit report included revisions dating back to December 2010 that are based on results of a two-part survey of finance companies in 2010 and 2011, according to a Fed statement. The survey is conducted at five-year intervals to estimate lending to U.S. consumers and businesses.

Non-revolving debt, such as that for college tuition or auto purchases, climbed $1.55 billion in July, the smallest gain since a decrease in August 2011. It climbed $13.1 billion in June. Cars and light trucks sold in July at a 14.05 million annual rate after a 14.3 million pace in June, according to Ward’s Automotive Group. Borrowing may have held up in August as auto sales were the strongest in three years.

Lending by the federal government, which is mainly for educational loans, rose by $1.1 billion in July before adjusting for seasonal variations. President Barack Obama signed into law a bill to keep student-loan interest rates, now at 3.4%, from doubling on July 1. The one-year extension on existing rates affects about 7.4 million students, according to the White House.

The decrease in revolving debt followed a $3.2 billion drop a month earlier, the first back-to-back decline since February 2011. The report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

The recovery is still being held back by limited progress in the labor market, which added fewer jobs than forecast in August. The unemployment rate eased to 8.1%, marking the 43rd straight month above 8%, as people left the labor force, Labor Department figures showed Sept. 7. The stretch is the longest of such elevated levels in the post-World War II era.

Consumer spending in the second quarter rose at a 1.7% annual rate, the slowest pace in three quarters, according to Commerce Department figures.

Most measures of household confidence declined in August. The Conference Board’s index decreased to 60.6 from a revised 65.4 in July, the biggest one-month decline since October, according to the New York-based private research group. The Bloomberg Consumer Comfort Index was minus 46.5 in the week ended Sept. 2, the fifth straight week below minus 40, a level typically associated with severe economic discontent.