Consumer credit expanded less than expected

August 7, 2024

Consumers are still reluctant to take on more debt amid higher rates. Consumer credit rose at a seasonally adjusted annual rate of 2.1% in June, slightly lower than expectations, after rising an upwardly revised 3.3% in May. Total credit outstanding rose by $8.9 billion. The three-month moving average has now normalized to $10.2 billion from $6.9 billion in May, closer to the 2010s average of $13.5 billion. Consumer credit outstanding rose 1.8% year-over-year, down from 2.2% last month.

Revolving debt, which is primarily made up of credit cards, fell at a 1.5% annual rate in June after bouncing back in May. Revolving debt fell for two out of three months in the second quarter despite strong consumer data as consumers became more discerning in their purchases. Discounting picked up and allowed households to increase spending without carrying higher balances on their credit cards. Rates began to tick down to start the year according to the May report, a tailwind for more stressed borrowers. An even more optimistic point is that delinquency rates started to stabilize in the second quarter according to the New York Federal Reserve Bank's Household Debt and Credit Report.

Nonrevolving debt, which includes car loans, student loans and personal loans, rose at a 3.4% annual rate in June, the fastest pace since June 2023. Nonrevolving debt outstanding has now breached its all-time high from July 2023. Both credit access and utilization have been fairly low by historical standards due to higher rates; that is in spite of student loan borrowers paying down their balances and homeowners tapping their home equity lines of credit (HELOCs). HELOCs are primarily being used for renovations; more than half of the HELOC originations since the first quarter of 2023 have had credit limits below $100,000.

The series for consumer credit does not adjust for inflation. Given the negative consumer price index reading in June, consumer credit outstanding rose 0.3% in June, the second increase after five consecutive months of falling real consumer credit outstanding.