Consumer Credit Increases by $19.1 Billion in July

Total consumer credit outstanding increased by 6.7% ($19.1 billion) over the month in July to $3.45 trillion (seasonally adjusted, annualized rate). In addition, consumer credit in June was revised significantly upward from a gain of $20.7 billion to $27.0 billion, which was the largest monthly gain recorded since 2010. Over the 12 months ending in July, total non-mortgage consumer debt was up by 6.8%.

Both revolving and non-revolving debt posted healthy gains last month. Non-revolving debt, which is composed mainly of auto and student loans, increased by 7.0% or by $14.8 billion. Over the year ending in July, non-revolving debt was up by 7.9% to $2.54 trillion.

Revolving debt, primarily spending on credit cards, rose by 5.7% ($4.0 billion) to nearly $915 billion. On a year-over-year basis, revolving debt has increased by 3.9%, but remains 10.5% below peak levels reached before the recession.

Low interest rates and rising home values are providing the encouragement consumers need to borrow for big ticket purchases. As long as employment and wage growth continues, consumer borrowing should continue to post solid gains. One thing to keep an eye on is that in the absence of stronger wages gains, the share of consumer credit to disposable income continues to creep up, hitting 25.8% in July (28.3% in real terms). So far, households appear to be managing their debt. According to the Federal Reserve’s Quarterly Report on Household Debt and Credit (August 2015), auto loan and credit card delinquencies have remained stable but student loan delinquencies are on the rise (from 11.1% 1q15 to 11.5% 2q15).

Source:  http://www.federalreserve.gov/releases/g19/current/default.htm