The Federal Reserve has reported that total consumer credit rose by $7.2 billion in May, marking a significant decrease from the previous month’s gain of $20.3 billion. This translates to an annual growth rate of 1.8%, down from the revised 5% gain in the prior month.
Lowest Increase Since November 2020
This increase in consumer borrowing is the lowest seen since November 2020, signaling a potential slowdown in consumer spending habits.
According to economists surveyed by the Wall Street Journal, the expectation was for a gain of $21 billion, highlighting the surprise decline in consumer credit growth.
Initially, credit was reported to have increased by $23 billion in April, with an annual growth rate of 5.7%.
Revolving Credit vs. Nonrevolving Credit
Revolving credit, which includes credit cards, saw an 8.2% rise in May following a significant 13.8% gain in the previous month.
On the other hand, nonrevolving credit, typically consisting of auto and student loans, experienced a decline of 0.4% after a growth rate of 2.1% in the prior month. This marks the first decrease in nonrevolving credit since April 2020.
It’s important to note that the Fed’s data does not include mortgage loans, which are the largest category of household debt.
Monitoring Household Balance Sheets
Economists are closely monitoring these trends in consumer credit growth as they indicate potential strains on household balance sheets. While top income earners continue to spend, many other households are pulling back on their expenses.
Market Reactions
Despite the decrease in consumer credit growth, stocks maintained their upward trajectory in afternoon trading on Monday. The yield on the 10-year Treasury note also slightly decreased but remained around 4%.
