Bad sign for economy as consumers cut back on debt

The Federal Reserve reported Tuesday that consumer credit expanded just 3 percent in June, compared to 7.8 percent in May and 4 percent in April. The $6.5 billion increase in total debt was less than economists had expected.

A Bloomberg survey of 30 economists predicted gains of $5.5 billion to $15 billion. Economists surveyed by Dow Jones Newswires had forecast a $10 billion expansion.

{mosads}Revolving credit, such as the debt on credit cards, fell in June for the second time in two months. It registered a 5.1 percent decrease.  

Non-revolving loans such as for autos and college tuition increased 7.2 percent. Students had been facing a possible increase in federal student loan rates at the end of June until Congress acted at the last minute.

Consumer credit is intimately linked to spending and any slowdown in spending limits demand for goods and services. This in turn could lead to an economic downturn.