Consumer Credit: A Rebound in December and January After a Soft November

The January report on consumer credit included a marked adjustment to data for December, as the Federal Reserve reduced the volume of outstanding credit in that month by $115.8 billion, which left a month-to-month decline of 23.6% (annual rate). The adjustment involved an obvious break in the series because the Fed also publishes percent changes that are adjusted for breaks, and this measure was sharply out of line with the published levels (showing a gain of 8.7%). The balance of this review is based on a level series created by Haver Analytics using the break-adjusted percent changes published by the Fed.

Consumer credit rose $18.1 billion in January, which translates to growth of 4.3% (annual rate). This reading was firm relative to most observations in the past year, and it followed a surge of 8.7% in December. Both revolving credit (primarily credit cards) and other borrowing contributed to the recent strength. The past two months might be seen to signal an acceleration in growth, but November was weak, declining at an annual rate of 3.3%. The average gain in the past three months totaled 3.2%, which was in line with the performance of the past year. Thus, we view recent monthly shifts as random volatility rather than an underlying pickup.

While recent monthly changes do not seem to represent a fundamental shift, underlying credit patterns have fluctuated widely in recent years. Households paid down substantial amounts of debt during the pandemic, as lock downs limited spending options and as financial support from the federal government provided the wherewithal to pare obligations. Aggregate pay downs largely ceased in mid-2020, but Individuals continued to manage debt cautiously through mid-2021. Individuals then borrowed aggressively during the latter part of 2021 and 2022 before gradually easing the pace in 2023 and 2024.

The changing patterns of debt use in the past several years has led to sharp changes in the financial position of the household sector. The debt pay downs and cautious borrowing during the pandemic and its aftermath led to a sharp reduction in the debt-service burden (i.e. required debt payments as a percent of disposable personal income; see chart). Service burdens picked up as borrowing accelerated in 2021 and 2022, although they remain comfortable relative to pre-pandemic norms and they are light relative to readings from 2005 through 2010 (the series started in 2005).

The debt burden measure does not raise deep concern about financial stress in the household sector, although delinquency rates on consumer loans at commercial banks are less comforting. Late payments have picked up in recent years and have moved above levels seen just before the pandemic. While notable, the pickup in late payments is not especially alarming. The uptrend in delinquencies has slowed recently, now largely moving sideways, and late payments are below levels seen before the recession that began in 2008.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s USECON database. The Action Economics forecast figures are contained in the AS1REPNA database.