Did Households Reduce Debt in Anticipation of Holiday Shopping Binge?

Household debt in the U.S. declined 0.6% in the third quarter, according to the Federal Reserve Bank of New York, while mortgage balances shrank.

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Consumer indebtedness declined by $60 billion to $11.66 trillion in the July through September period, according to the New York Fed’s quarterly report on household debt and credit. Mortgage balances fell by 1.3%, or about $114 billion.

“Households continue to try and deleverage in the wake of a challenging economic environment and large declines in home values,” said Andrew Haughwout, vice president in the Research and Statistics Group at the New York Fed. “However, our findings also provide evidence that consumer credit demand continues to increase, a positive sign for consumer sentiment.”

Thanksgiving weekend retail sales climbed 16% compared to last year, with the average shopper spending $398.62, up from $365.34 a year earlier. Web sales on Black Friday were up 26% this year to $816 million.

Consumer spending, which accounts for roughly 70% of the U.S. economy, grew at a 2.3% annual rate in the third quarter, the fastest pace of 2011, according to a Commerce Department report on November 22. However, the nation’s savings rate fell, suggesting that consumers broke open the piggy bank in order to keep spending.

That trend reversed in October, the first month of the fourth quarter, when consumer spending rose less than forecast as Americans used the largest gain in incomes in seven months to rebuild savings.

The delinquency rate rose to 10% at the end of September, compared to 9.8% on June 30, according to the Fed survey, while about 264,000 consumers showed new foreclosures on their credit reports, 7% less than in the second quarter. The amount of new bankruptcies fell 18.8% compared to the third quarter of 2010 to 423,000.

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The New York Fed’s report today also upwardly revises second quarter figures to “reflect improvements” in its measurements of student loan borrowings, which it had “previously undercounted.” Student loan accounts have caused the estimate of total consumer indebtedness at the end of the second quarter to climb by $290 billion, or 2.5%. The bank is still revising earlier data.