Consumer credit declined for the sixth straight month in July, according to the Federal Reserve. It fell at an annualized rate of 1.8% during the month. That might not sound like a lot, but it's the biggest drop since April. Although shrinking revolving credit continues to drive the trend, non-revolving credit was nearly flat during the month.

Here's the chart, since the recession began:

consumer credit 2010-07.png

Total credit fell $3.6 billion during the month to $2.419 trillion. That's the lowest it's been since March 2007. As mentioned, revolving credit drove the decline, falling by $4.2 billion or 6.3% on an annualized basis. Its current level of $828 billion is the least since November 2005. Non-revolving credit was up slightly during the period by $1.6 billion, an annualized rate of 0.6%.

That non-revolving credit increase was due in large part to the federal government increasing its holding of consumer debt. Its balance, which is entirely non-revolving, rose by 4.4%, at an annualized rate of 24%. Since the end of 2008, the federal government's holdings have increased by $116 billion, or 104%.

As for other major holders of credit, almost all the their balances were close to flat in July, except for pools of securitized assets, which continued their march downward. They fell by $3.5 billion, at an annualized rate of 29%.

Credit continues to decline for two reasons. Consumers are trying to strengthen their balance sheets by paying down their debt. Banks have also tightened their underwriting standards, so credit is harder to get. These trends will likely continue until the economy begins to see broad improvement.