Consumer credit falls unexpectedly in July

A credit card user displays her cards in Washington February 22, 2010.

WASHINGTON (Reuters) - Consumer credit fell in July for the first time in nearly a year as Americans reduced credit card debt, a worrisome sign for an economy that has struggled to create jobs.

Consumer credit shrank by $3.28 billion in July, the Federal Reserve said on Monday. That was well below the $9.1 billion advance Wall Street economists had forecast in a Reuters poll.

However, in a more positive sign, the Fed revised substantially higher its estimate for credit growth in June.

The data follows a report on Friday that showed U.S. jobs growth slowed sharply in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy as soon as this week.

Some analysts said concerns over the shaky economy might be making Americans less willing to run up debts - or creditors less willing to give them loans. "It may be the case that consumers and lenders were becoming more tentative over the summer," analysts at Credit Suisse said in a report.

Credit has been expanding almost continuously since mid-2010 as the country recovered from the 2007-2009 recession. The decline in July was the first drop since August of last year.

In July, revolving credit, which includes credit cards, shrank by $4.82 billion.

Credit data can be tricky to interpret because cutting back on debt is not always a sign of pessimism. People might be relying less on credit card debt to buy things because they are earning more money.

But the trend in credit card debt is looking increasingly worrisome. Revolving credit has now declined in three of four months through July. That had not happened since early 2011, and underscores the wobbliness seen in the economy in recent months as hiring has slowed and growth in factory activity has declined.

"(The data) looks consistent with the lackluster gains in consumer spending reported elsewhere," JPMorgan economist David Silver said in a note to clients.

Non-revolving credit increased by $1.55 billion, down from an increase of $15.07 billion in June.

The Fed does not release seasonally adjusted data on student loans, which have been a driver on non-revolving credit since the recession.

However, lending to students by the government rose 24.8 percent in July from a year earlier, down from a 30 percent increase during the 12 months through June, according to the Fed data.

July's slowdown might be a sign that some students were wary of taking out new loans as Congress debated whether to keep interest rates low for federal loans, said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.

Obama signed legislation in July keeping federal support for student loans in place.

Consumer credit flows -- a relatively new data series that the Fed says is more sensitive to economic trends -- also cooled. The flow of consumer credit fell at an annual rate of $39.3 billion in July.

(Reporting by Jason Lange; Editing by Andrea Ricci and Leslie Gevirtz)