This market and economy are painful, but there is some good news out there.  Consumers (we are just numbers to them) are paying off debt faster than they are accumulating it….YES!

It was the first month since January 1998 that consumers had paid off more debt than they took on.

Borrowing to buy an automobile declined sharply. Consumers also charged less on their credit cards than they paid off.

Seasonally adjusted consumer debt — including credit cards, auto loans and other unsecured debts — fell by a record $7.5 billion, or a 3.7% annual rate, to $2.58 trillion in August. That’s the largest percentage drop since January 1998, the Federal Reserve reported Tuesday. Consumer debts had risen 2.4% in July.

 - Consumers pay down debt for first time in 10 years (Market Watch)

The consumer is retrenching.  This is a good thing for the future of the markets, but over the short-term (few months) this will cause more pain.  The immediate pain will be felt by retailers and anyone who makes any consumer discretionary items, as the retrenching suggests Christmas spending will not be strong.

Of course, the National Retail Federation predicts a 2.1% gain in sales for the Christmas season.  This is 1-2% less than last year.  If the National Retail Federation is anything like the National Association of Realtors, and they probably are, this rosy prediction will crash and burn.  Does an increase in spending really make sense when $2 trillion has been lost from retirement accounts over the last 15 months?  This doesn’t take into account none retirement account loses or real estate losses.  Christmas spending will go down from last year and everyone will be “surprised.”  All you have to do is look at Apple’s recent chart to know discretionary goods are going to be hit hard.  Who needs a $300-400 iPod when you might lose your house, car or job?

More pain = more buying opportunities, so keep your eyes open in the weeks and months ahead.