Consumer Credit Use Grows at the Slowest Rate in 7 Months

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How much did Americans borrow and what does it mean for the economy?

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

Here's what you need to know about how credit habits have changed in recent months.

How did consumer credit use change in August?

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

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Revolving credit increased by 3.6% compared with 7% the prior month, while non-revolving use credit rose by 4.1%. Revolving credit refers to credit cards and other types of loans that provide a credit line borrowers can tap repeatedly. This is the second month in a row that non-revolving credit increased at this same 4.1% pace. Non-revolving credit, such as 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 consumer credit use meant Americans borrowed around $14.4 billion more in August. This is a substantially smaller increase than the $17.2 billion jump that occurred in July. It's also the slowest rate of increase since the start of the year. The increase also fell short of what economists were expecting, as experts had projected a $17.5 billion rise in credit use over the course of the month.

What does this mean for the consumer economy?

The increase in credit use occurred at a time of rising prices. The U.S. Commerce Department reported a 4.3% increase in prices in August compared with a year ago. Energy costs have increased dramatically, increasing close to 25%, while furniture, cars, and appliances have also become costlier over the course of the past year.

Consumers, in general, have been borrowing more in 2021 than in 2020. Not just 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, lower-than-anticipated consumer credit use during August suggests that consumers may have rising concerns about future economic growth, in light of the delta variant that could be affecting their willingness to borrow. Shortages that have sent the price of vehicles skyrocketing have also contributed to the slow increase in non-revolving credit as fewer borrowers have been getting auto loans.

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

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