US Dollar/Japanese Yen, Stocks Weighed Down as US Consumer Credit Falls By The Most On Record

Consumer credit growth in the US fell for the first time in over 10 years and by the most since record-keeping began in 1943, adding to evidence that consumer spending is bound to pull back sharply through the end of the year as the global credit crunch impacts nearing every part of the economy. According to the Federal Reserve, consumer credit fell by $7.9 billion in August, down 3.7 percent from a year earlier, due primarily to weaker nonrevolving credit like auto loans. Indeed, this makes the point that the credit crisis the market is facing isn't one that just hurts Wall Street, but impacts Main Street as well. If banks will not lend to eachother, they won't be lending much to businesses and consumers either. As we discussed last Friday, US consumers are particularly used to living with a high amount of debt. With the availability and demand for credit falling rapidly, this is sure to hurt retailers going forward.

The news has led USD/JPY to break lower, while US stock markets have taken a hit with the DJIA looking like it could close near 9,500 while the S&P 500 may close just above 1,000. In case anyone forgot, risk aversion is still driving price action throughout the financial markets.

US Consumer Credit, Total Net Change (SA) (Monthly Chart)

Source: Bloomberg