Consumer credit off historical averages

July 8, 2024

Consumer credit rose at a seasonally adjusted annual rate of 2.7% in May, in line with expectations, after rising just 1.5% in April. Total credit outstanding rose by $11.4 billion. The three-month moving average has dipped to $5.5 billion, well under the 2010s average of $13.5 billion. Consumer credit outstanding rose 2.1% year-over-year from 1.9% last month; consumers are still avoiding taking on debt amid higher rates.

Revolving debt, which is primarily made up of credit cards, rose 6.3% in May at an annual rate after falling in April. That is the fastest reading since February of this year and an all-time high. Readings in March and April had raised red flags that the stress emerging among low-income and young borrowers may have been spreading. That does not seem to be the case in May. In addition, it appears that rates on credit cards may have finally turned a corner as lenders look forward to rate cuts from the Federal Reserve. Rates on credit card plans fell slightly in this report to 21.5%, for the first time since Q4 2021. Falling rates will no doubt help the highest risk borrowers who have been maxing out their cards more frequently in recent quarters.

Nonrevolving debt, which includes car loans, student loans and personal loans, rose at an annual rate of 1.4% after rising 2.4% in April. That is not quite the all-time high reached in July 2023 but still a strong reading. Both credit access and utilization have been fairly low by historical standards due to higher rates, even as student loan borrowers pay down their balances. In addition, higher price levels in combination with rates have priced many out of the large loans needed to purchase a home or a car. The good news is that, like credit cards, this report marked marginal decreases in the rates on new car loans and personal loans. Five- and six-year car loans both fell to 8.2% and 8.3%, respectively. Those are small decreases but still the first declines since 2021 and 2022. Personal loans fell more significantly, down half a percent to 11.9%.

The series for consumer credit does not adjust for inflation; however, May marked the coolest month for inflation this year, with headline CPI coming in flat. That means, in real terms, consumer credit rose for the first time since November 2023.