Consumer Credit Craters

30% of American shoppers plan on spending less this holiday season than last year, reports market research biz NPD Group today. What’s more, when the Xmas shopping season arrives in force, 50% of respondents said the “state of the economy” will have a “significant effect on their holiday spending.” Recall our leadoff bit in yesterday’s 5, which showed that consumer spending now accounts for a record 71% of U.S. GDP… might be a rough start to 2010.

“Consumers continue to ditch credit cards at a hefty clip,” writes Rob Parenteau, “exceeding that of the two prior steep recessions of 1973-5 and 1980-2. Since this is the highest-cost form of household debt, this reduction of consumer credit outstanding helps immensely in slimming the interest expense burden of debtor households while at the same time reducing the leverage on household balance sheets.

“There are many who are eager for banks and other creditors to open up the taps again for private credit flows. We have no disagreement in the case where sound business expansion plans need to be financed, especially for small businesses. But we see much to be gained by encouraging households to save for future expenses and by encouraging households to keep their spending growth below their income growth. After the debt distress and financial fragility revealed in this last recession, when the household sector achieved an unprecedented deficit-spending position, it is hard to understand why this is even a source of dispute, but there are many who seem convinced a return to just a lighter, somewhat diluted version of the prior growth pattern, which was clearly dependent upon serial asset and credit bubbles, is the best way forward. We are certain Dr. Richebächer would find this s tance rather bizarre, but old habits and addictions don’t tend to die very easily.” (From Agoracom)