Jump in January consumer credit needs context

March 7, 2024

Consumer credit rose at a seasonally adjusted annual rate of 4.7% in January, nearly double expectations and reversing course from sharp slowdown we saw in December. That is the second fastest increase in the past 12 months, eclipsed only by November's jump. Total consumer credit outstanding now stands at $5.04 trillion. Households have so far continued to withstand the higher costs of debt with low delinquency rates on household debt as they support robust consumption.

On a year-over-year basis, consumer credit has grown 2.5%, the slowest pace since April 2021; it peaked in April 2022 at 9.9% when households used credit cards to hedge against inflation.

Both revolving and nonrevolving debt increased in January. Revolving debt, which is dominated by credit cards, rose by 7.6%. While that may seem like a large increase, it is still slower than the average monthly SAAR increase in 2023 at 8.5% and 2022 at 14.2%. Credit card delinquencies and defaults have risen in recent quarters; much of that stress is concentrated among low income or young borrowers. The default rate on credit cards is still just under where it was in 2019 according to the New York Federal Reserve Household Debt and Credit Report.

Nonrevolving debt, which includes motor vehicle loans, student loans and personal loans, rose by 3.6% in January after falling slightly in December. It still has not reached its all-time high, just prior to the end of student loan forbearance.

The series on consumer credit does not adjust for inflation. When controlling for the pop in inflation in January, consumer credit fell only slightly during the month. It continues to run slightly above February 2020 levels and well off of the all-time high in December 2022. This was the fifth consecutive month when consumer credit has fallen in real terms.