Consumers decreased their use of credit by 1.5 percent in July on a seasonally adjusted annual basis, according to the Federal Reserve's most recent consumer credit release. The July decrease was the first in 11 months and brought the total U.S. consumer credit level to $2.71 trillion.
Revolving credit decreased for a second consecutive month falling by 6.8 percent, following a June decrease of 4.5 percent. The decrease in revolving credit could signal decreased profit and earnings growth for U.S. retailers since revolving credit primarily includes credit card purchases.
Stock prices fell for retailers Gap (GPS) and Tiffany's (TIF) following the consumer credit announcement. Gap's price decreased by 2.23 percent in the day following the announcement while Tiffany's fell 0.61 percent. Department store retailers Macy's (M) and Sears (SHLD) showed similar results, falling 2.94 percent and 2.77 percent, respectively.
The S&P 500 Consumer Discretionary and Consumer Staples sectors were also down following the day's announcement, signaling the effects revolving credit borrowing have on the market's retail companies. The Consumer Discretionary sector was down 0.30 percent while the Consumer Staples sector fell 0.42 percent.
Non-revolving credit, which primarily includes retail banking and student loans, dropped significantly for the month to 1 percent in July from 9.8 percent in June, starting the third quarter far below the second quarter's average of 8.6 percent.
Wells Fargo (WFC) and Fifth Third Bank (FITB) saw stock price decreases following the credit announcement of 2.43 percent and 0.85 percent, respectively. Meanwhile, Citigroup (C) was up 1.84 percent and Bank of America (BAC) gained 2.60 percent while the S&P 500 Financial sector was unchanged following the announcement, which could be a sign of decreased lending issuance due to tightened lending standards.
As consumers continue to spend tentatively it appears further decreases in consumer credit would have the greatest effects on the Consumer Discretionary and Consumer Staples sectors, meaning retail companies could see further declines if credit levels continue to decrease.