Consumer credit use grows at slowest rate in 7 months

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Americans increased their use of credit at a slower-than-expected pace in August, according to a report by the Federal Reserve. The increase was the smallest change since January 2021 and well below the growth seen earlier in the summer.

Here’s what you need to know about how credit habits have changed over the past few months.

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How did the use of consumer credit change in August?

In August, consumer credit increased at a rate of 4% on a seasonally adjusted basis, according to the Federal Reserve.

Revolving credit increased 3.6% from 7% the previous month, while non-revolving credit increased 4.1%. Revolving credit refers to credit cards and other types of loans that provide a line of credit that borrowers can use repeatedly. This is the second consecutive month that non-revolving credit has increased at the same rate of 4.1%. Non-revolving credit, like auto loans, tends to be less volatile than revolving credit. Non-revolving credit involves borrowing a lump sum and making payments on a fixed schedule over time.

In total, the increase in the use of consumer credit means Americans borrowed about $ 14.4 billion more in August. This is a much smaller increase than the jump of $ 17.2 billion that occurred in July. It is also the slowest growth rate since the start of the year. The increase was also lower than economists expected, as experts predicted a $ 17.5 billion increase in credit use during the month.

What does this mean for the consumer economy?

The increase in the use of credit came at a time of rising prices. The US Department of Commerce reported a 4.3% increase in prices in August compared to a year ago. Energy costs have risen dramatically, increasing by almost 25%, while furniture, cars and appliances have also become more expensive in the past year.

Consumers, in general, borrowed more in 2021 than in 2020. Not only because of rising prices, but also because there are more spending opportunities with the economy out of lockdown. Government stimulus funds have also given consumers the funds to make down payments to finance large purchases and may have made some households more confident in their ability to make ongoing monthly loan or credit card payments.

Still, weaker-than-expected consumer credit usage in August suggests consumers may have growing concerns about future economic growth, in light of the delta variant that could affect their willingness to borrow. Shortages that caused vehicle prices to skyrocket have also contributed to the slow increase in non-revolving credit, as fewer borrowers have obtained auto loans.

Ultimately, consumers will have to make independent decisions about whether taking on revolving or non-revolving debt makes financial sense to them. While their choices collectively impact the economy as a whole, each household must assess its ability to commit to future payments as well as the impact that additional borrowing will have on the chances of successfully reaching the bottom line. long-term financial goals.


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