Slower Consumer Credit Growth Points to Spending Slowdown

Key Takeaways

• Consumer credit increased by $8.9 billion in June, less than economists expected.
• Credit card borrowing dropped by the most in three years as consumers reined in spending.
• Previous months’ credit levels were revised higher, offering a counterpoint to Wednesday’s data.

Consumers slowed their borrowing in June, according to data released by the Federal Reserve on Wednesday, in yet another sign of the toll elevated interest rates and economic uncertainty are taking on the engine of the U.S. economy.

Consumer credit increased by $8.9 billion in June, putting growth at an annual rate of 2.1%. Economists surveyed by the Wall Street Journal and Dow Jones Newswires had projected credit would increase by $9.7 billion.

“Consumers are feeling the pressure from elevated price levels and slowing income growth,” said Jeffrey Roach, LPL Financial chief economist.

However, the Fed also revised its data from prior months higher. Wednesday’s report showed credit grew by $14 billion in May, nearly $3 billion more than was estimated in last month’s report.

Credit Card Spending Suggests Consumer May Be Losing Steam

While consumers continued to add credit, there were some signs the public pulled back on spending. Revolving credit, primarily made up of credit card accounts, declined by $1.7 billion in June, the biggest drop since March 2021.

“Softer demand for credit will likely impact lower-income consumers the most, but overall, the data suggest a slowdown in consumer spending for the rest of this year,” Roach said.

Consumer spending accounts for well over half of U.S. GDP, which is why investors and economists closely watch borrowing and spending as an economic indicator. Strong consumer spending helped support growth in 2023 and, despite some weakening, has so far remained resilient in 2024.

There were other signs this week that consumers were feeling the strain of borrowing. A New York Federal Reserve report showed more borrowers were falling behind on payments for both credit cards and auto loans.

Overall, the data released by the Federal Reserve indicates a potential slowdown in consumer spending. This can be attributed to various factors, including elevated interest rates and economic uncertainty. The growth in consumer credit in June fell short of economists’ expectations, with an increase of $8.9 billion compared to the projected $9.7 billion. This slower growth can be attributed to consumers feeling the pressure from elevated price levels and slowing income growth.

While consumers continued to add credit, there was a significant decline in revolving credit, primarily consisting of credit card accounts. In June, revolving credit dropped by $1.7 billion, marking the largest decrease since March 2021. This decline suggests that consumers are pulling back on spending, which may have a more significant impact on lower-income individuals. The data indicates a potential slowdown in consumer spending for the remainder of the year.

Consumer spending plays a crucial role in the U.S. economy, accounting for a significant portion of the GDP. As such, investors and economists closely monitor borrowing and spending patterns as indicators of economic health. Strong consumer spending has supported growth in previous years, but recent data suggests a potential weakening trend. Despite remaining resilient in 2024, there are concerns that consumer spending may continue to slow down.

Additionally, a recent report from the New York Federal Reserve highlighted an increase in delinquency rates for credit cards and auto loans. This further indicates that consumers are feeling the strain of borrowing and may struggle to keep up with their payments.

In conclusion, the latest data on consumer credit growth points to a potential slowdown in consumer spending. With consumers feeling the pressure from various economic factors, including elevated interest rates and slowing income growth, there is a clear impact on borrowing and spending patterns. The decline in revolving credit, particularly credit card accounts, suggests that consumers are pulling back on spending. This slowdown in consumer spending may have a more significant impact on lower-income individuals. As consumer spending plays a crucial role in the U.S. economy, these trends are closely monitored by investors and economists. While consumer spending has remained resilient in 2024, there are concerns about its future trajectory.

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