Consumers in Florida and around the country are tightening their belts, according to the Federal Reserve Board. Bargain hunting and penny pinching have paid off for many but may be throwing a monkey-wrench into the economic recovery.

The Fed released two reports this week that highlighted consumers’ caution. The reports analyze July and August 2010 data for each Federal Reserve District. Florida is in the Sixth District, which is headquartered in Atlanta.

Nationally, July was the sixth consecutive month to show a decrease in consumer credit. The annual rate fell 1.8% as consumers shed around $163 billion in debt. Revolving consumer debt also declined — at a remarkable 6.3% annually.

In the Sixth District, both car dealerships and retail establishments reported declines in sales, indicating that consumers are buying less. Visitors are spending money in Orlando, though — hotel occupancy rates were up in both July and August.

How people pay for their purchases has changed during the recession. Credit cards ruled at one time. Now, debit cards and cash are kings. Lenders, including credit card companies, have seen lower activity as well, as the result of either consumer cost-cutting or stricter screening processes.

This frugality is a double-edged sword, though. While consumers are crawling out from under their debt burdens, they aren’t spending money and stimulating the economy. For the recovery to hold, consumers need to spend more.

In the midst of a foreclosure firestorm, it should be no surprise that sales of existing homes fell — not by much, but they fell, nonetheless. According to the Fed, employment rose slightly in the Sixth District, but not so much from full-time jobs as from temporary or contract workers, neither of which are typically enrolled in employer-sponsored benefit programs. A temporary worker may be earning a wage, but much of that wage is eaten up by out-of-pocket medical costs, for example. That leaves less cash on hand.

Markets don’t always work the way humans do. In a down economy, according to these reports, we’re less likely to spend and more likely to whittle away at what we owe.

Resources:

iStockAnalyst “Cautious Consumers Rein in Economic Growth” 9/9/10

Federal Reserve Board “The Beige Book – Sixth District – Atlanta” 9/8/10