Consumer Borrowing Plummeting Fast

What does this picture tell you about the state of the U.S. economy and the changing spending habits of consumers?

The U.S. Federal Reserve released a report yesterday stating consumer borrowing in the U.S. fell $1.2 billion in September–the biggest monthly decline since April, 1992. Loans for automobiles dropped the most, down by an annual rate of 3.2% in September.

In the same report, the Fed said borrowing on credit cards rose in September.

At this point in the economic cycle, consumers are obviously reducing their borrowing activities for big ticket items such as cars (we already know the homebuilders are hurting). Are consumers loading up their credit cards with smaller purchases or are their credit card balances remaining fat? No one really knows for sure.

But we do know this: American consumers are cutting back on spending. It could be higher interest rates… it could be the falling housing market putting the breaks on for most consumers… or maybe consumers are just tapped out. Whatever the reason, or combination of reasons, to account for consumer cutbacks on borrowing, I’ve never seen an economy expand when consumer buying is contracting.

Who came up with the concept that lower oil and energy prices would help consumers continue spending? I haven’t seen this idea come to fruition yet. Nor do I believe lower gas prices will make much of a difference on consumer spending.

Would I own a consumer good stock right now? Not me. I see 2007 as being a very difficult year for consumers and the economy. Now if someone can just tell me why the stock market sits near a record high?

Here’s a better question: Why isn’t the media picking up on the plummeting borrowing habits of American consumers? Oh, right, we are supposed to continue believing the economy is chugging along just fine… at least until Wall Street pays out that record $36 billion in bonuses this year.