Consumer credit continued to contract very severely in April, down $15.7 billion and roughly split evenly between revolving credit, down $8.6 billion, and nonrevolving credit, down $7.1 billion. Heavily underscoring the trouble is a steep downward revision to the prior month, now down $16.6 billion vs. an initial $11.1 billion decline. Banks are tightening available credit at the same time that consumers, many of whom are losing their jobs, are preparing for the worst. Personal income data earlier this week showed a big jump in the savings rate, now at 5.7 percent. The business cycle appears to be at or near an inflection point, that is at the deepest part of the recession with recovery perhaps beginning. But consumer retrenchment raises the risk that the bottom of the recession will be lengthened or perhaps deepened. This is a sleeper report that may not move the markets but is certain to get the attention of policy makers who are desperately trying to stimulate economic activity.

Market Consensus Before Announcement

Consumer credit outstanding continues to show consumers in a deleveraging mood, along with credit card companies cutting back on credit lines. Consumer credit outstanding fell $11.1 billion, following an $8.1 billion contraction in February. The contraction for March was split evenly between revolving credit (largely credit cards) and non-revolving credit (primarily car loans). We may see some improvement in March-at least in the non-revolving portion-since motor vehicle sales rebounded modestly that month.