The Federal Reserve on Thursday released it latest quarterly look at consumer and business finances showing that households reduced their debt levels by 0.8 percent at an annual rate in the July-September period, the first drop on records that go back more than 50 years.
The decline in household debt levels is evidence of the severe credit squeeze that is occurring as banks, saddled by billions of dollars of losses in mortgage debt, have tightened lending standards and made it harder for people to get loans.
Mortgage debt fell at an annual rate of 2.4 percent in the third quarter, the largest decline on record. Mortgage debt had fallen at an annual rate of 0.1 percent in the second quarter. Those two quarterly declines are the first such drops in the Fed survey that dates back to 1952.
In past periods of tight credit, mortgage and total household debt have never declined, although the debt growth usually slowed.
The Fed report also showed that households' net worth fell by 4.7 percent in the third quarter to $56.5 trillion, reflecting the hit Americans are taking as the value of their homes and investments decline.
The drop in household net worth -- total assets such as homes and checking accounts minus liabilities like mortgages and credit-card debt -- marked the fourth straight quarterly decline since total family net worth hit an all-time high of $63.6 trillion in the July-September quarter of 2007.