Personal debt reducing in the face of rising unemployment

Loans for personal finance fell 2.9 per cent in May suggesting that Australians are losing their appetite for debt as the jobless rate rises.

The borrowing drop, in seasonally adjusted terms, to $6 billion for the month compares with a 0.2 per cent gain in April, the Australian Bureau of Statistics said.

The area of real weakness (in the numbers) is personal finance with revolving credits, namely credit cards, down 4.8 per cent seasonally adjusted.

There’s plenty of evidence that people are winding back on credit cards.

Last week the jobless rate ticked up to 5.8 per cent for June, the highest since 2003, as companies responded to a slump in demand and cut more staff.

The threat of more job losses is also likely to make some households more wary of loading up with debt as their ability to pay back loans is placed at risk.

Households are making sure they can cope with longer term debt servicing.

May home loans increased 2.2 per cent, the ABS said, marking the eighth straight month of gains in an area crucial to the health of the economy.

The housing sector has been helped by the record low interest rates. The Reserve Bank last week held its key cash rate at 3 per cent.

article excerpts smh.com.au