Rising Consumer Credit: Reason for Celebration or Concern?

By SBE Council at 9 September, 2022, 11:26 am

by Raymond J. Keating –

Consumer credit continued to grow strongly in July, according to the latest data from the Federal Reserve.

Total consumer credit grew at annual rate of 6.2 percent in July. That came after growth of 10.2 percent in June and 6.2 percent in May.

Nonrevolving credit (e.g., “motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations”) was up by 4.4 percent in July, which was a slowdown compared to June’s 8.1 percent and May’s 5.6 percent.

However, revolving credit (mainly, credit cards) expanded by 11.6 percent in July, following on 16.8 percent in June and 8.0 percent in May. It’s also worth noting that revolving credit jumped by 14.7 percent in the second quarter of this year, by 17.0 percent in the first quarter, and 12.7 percent in the fourth quarter.

As SBE Council has asked before: Is this a healthy trend that reflects strong consumer confidence, or is it something more troubling, such as consumers using credit cards as a means for staying afloat given both inflation and a shrinking economy?

The consumer confidence numbers have been anything but robust lately. For good measure, given that consumer credit data is in nominal dollars, a significant chunk of the increase we’ve seen since early 2021 (see the following chart on revolving credit) has been about inflation.

Source: Federal Reserve Bank of St. Louis, FRED

Given the assortment of risks and uncertainties swirling in our economy, I lean far more toward being concerned about this rise in revolving credit, rather than treating it as a reason for celebration.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.