Evening Brief – 07.11.23

The Federal Reserve released its US consumer credit report for May on Monday. It revealed that credit grew by a meager $7.24 billion, down more than 50% from the downwardly revised $20.3 billion from $23 billion in April. According to the Bloomberg consensus, the figure was a big miss for a rise of $20 billion.

This was the lowest monthly increase in consumer credit since November 2020. The data may signal that the consumer’s strong spending habits may be waning for an economy largely reliant on a steady stream of credit growth.

While one might expect a drop in revolving credit after several months of near-record gains, this was not the case. Revolving credit increased by $8.5 billion in May. However, these are nominal numbers. Inflation-adjusted figures are significantly lower.

The surprise result was in non-revolving credit, largely student and auto loans. We’ve been seeing a sharp decline in the monthly increase in non-revolving credit, which after five months of declines printed at -$1.26 billion, the first negative reading since April 2020.

While we don’t know for certain yet whether this decline was driven by a reversal in student or auto loans, as the Fed publishes that data quarterly and next month we will get the results for the second quarter, it is not a far reach that at a time when student loans are still in forbearance, the impetus behind the slowdown is auto loans, which should not be a surprise with the rate on new 60-month car loan approaching the highest on record at 7.81%, a whisker below the all-time high of 7.82% established in the third quarter of 2006.

And with non-revolving credit now declining, a reversal in record credit card debt may be next.