Consumer credit is expanding

May 8, 2024

Consumer credit rose at a seasonally adjusted annual rate of 1.5% in March, less than expectations, after an upward revision in February. Total credit outstanding rose by $6.3 billion. The three-month moving average has been steady the last few months and leveled out in the first quarter at $13.2 billion, just under the 2010s average of $13.5 billion. The three-month moving average peaked in July 2021 at $67.5 billion, when consumers utilized credit to hedge against the worst of inflation. Consumer credit outstanding has fallen to 2.3% year-over-year from 2.6% last month.

Revolving debt was the outlier in the series in March. Revolving debt, which is primarily made up of credit card debt, was essentially flat, rising just 0.1% at an annualized rate. That is the lowest reading since April 2021, when consumers used the last of the stimulus checks in March to pay down their credit cards. Rates, which are published quarterly, have continued to climb on average in the first quarter and are likely to continue, with rates on all credit cards coming in at 21.6%. Credit card delinquencies have risen in recent quarters with the bulk of the stress presenting in low-income or younger borrowers.

On the other hand, nonrevolving debt was higher in March than in February, rising at a 2.0% annualized rate or $6.1 billion. Nonrevolving debt, which includes car loans, student loans and personal loans, is at a near all-time high. Only July 2023 had a higher reading. Student loans, which only appear in the series on a quarterly basis, have finally started to rise after forbearance, rising at an annual rate of $95.6 billion after falling for three consecutive quarters.

Higher rates have kept many from purchasing vehicles even as auto makers begin to bring back deals. The series, which is also posted quarterly, rose a paltry $4.4 billion at an annual rate in the first quarter. That is the slowest annual pace since the onset of the pandemic in the first quarter of 2020 and the third slowest pace since the 2008 financial crisis. Average rates were 8.2% for a 60-month new car loan term and 8.4% for a 72-month term. The rates were up for 5-year terms from 8.15% in the fourth quarter but down for 6-year terms from 8.7%, reflecting the deals that car makers are willing to make.

The series for consumer credit does not adjust for inflation. Given the hotter inflation readings in the first quarter, consumer credit outstanding has been much cooler than some may believe. When controlling for inflation, consumer credit outstanding fell by nearly 0.3% after falling in February as well. Revolving debt and nonrevolving debt also fell in real terms.