Consumer Credit Growth Unexpectedly Crashes

Consumer debt growth declined by much more than expected in May, data from the Federal Reserve showed Wednesday.

Consumer credit, which excludes home loans, grew by just $7.3 billion, an annual rate of 1.8 percent increase from the prior month’s downwardly revised growth figure of $20.3 billion.

Economists had been expecting consumer debt to grow by around $20 billion. The 1.8 percent rise is far lower than historically normal levels of four to five percent and much lower than the 5.9 percent growth seen in 2021 and eight percent growth in 2022. In April, consumer credit grew by at an annual rate of five percent.

Revolving credit—primarily credit card debt—grew at an 8.2 percent annual rate, a big slowdown from the 13.8 percent growth rate in both April and March.

Nonrevolving credit—which primarily consists of auto loans and student loans—contracted for the month, falling 0.4 percent.

The slowdown in consumer lending may indicate that consumers are hesitating to borrow to finance spending for fear of a downturn and because of rising interest rates. As well, credit standards at lenders may be tightening, restricting the supply of credit to consumers.