Consumer credit tops out at $9 billion

October 7, 2024

Consumer credit rose 2.1% in August at a seasonally adjusted annual rate. That was below the 6.3% rate in July but above the 0.8% rate in June. Total credit outstanding increased by $9 billion, less than the expected total of $13.4 billion. Another way of looking at the trend, the three-month moving average slightly fell in August to $12.9 billion. That is back below the 2010s average of $13.6 billion. Consumer credit outstanding rose 2.3% compared to the same time last year; that's up from 1.8% in July.

Revolving debt, made up primarily of credit cards, declined by 1.2% at an annual rate after jumping 9.4% the previous month. The August reading is the lowest rate since March 2021 when consumers were still using stimulus aid and their savings to pay down credit card debt.

Rates on credit card plans increased to 21.8%. This marked a reversal from the first to the second quarter of the year when rates had slightly fallen. It is well above the rates from the 2000s and 2010s. Future expected cuts in interest rates by the Federal Reserve should continue to lower credit card interest rates via reductions to the prime rate. The prime rate however, does not account for the majority of interest charged on credit cards. Credit card rates have risen also in anticipation of a new proposed regulation to cap late fees. Despite continued discounting, consumers are feeling the weight of high rates and the compounding interest. This is especially affecting lower income and younger consumers.

Nonrevolving debt, which includes car loans, student loans and personal loans, rose at an annual rate of 3.3% in August after an upwardly revised 5.2% gain in July. Rates on new car loans reached new highs. The 60-month loan rose from 8.2% in the second quarter to 8.4%. The 72-month loan increased from 8.3% in the second quarter to 8.8%. New vehicle sales edged slightly down in August on a seasonally adjusted annual rate. They were still strong, reflecting consumer demand, especially from higher income households.

The series for consumer credit is not adjusted for inflation. As inflation nudged higher month-over-month in August, real consumer credit outstanding declined slightly by -0.02%. That is the first real decline since April.