Consumer Credit Growth Robust in July Despite Slowing Economic Outlook

By Curtis Dubay and Jack McCabe

Consumer credit grew at a strong 6.8 percent pace in July, according to the Federal Reserve. Consumer credit includes all credit except loans secured by real estate. This was the strongest pace this year and the strongest since July 2018. Revolving credit grew at more than 11 percent and non-revolving credit grew more than 5 percent.

The almost 7 percent jump in consumer credit was a surprise. It had grown around 4 percent in previous months and revolving credit actually fell in June. Consumer confidence has plateaued and uncertainty about pace of economic growth has increased, leading to dampened expectations that credit growth would pick up.

Nonetheless, consumers continued to spend and drove the U.S. economy forward last month. As ABA Chief Economist James Chessen wrote recently, consumers are financially healthy and can manage the increase in debt. The job market remains tight (with 1.4 million more job openings than people unemployed), real wages are growing, savings rates remain high, and leverage overall remains near historic lows.

On the flip side, business confidence—both in the U.S. and abroad—has fallen as the trade policy uncertainty continues to weigh on future growth expectations. Uncertainty freezes business decision, and many businesses are cutting back, or holding off on, investment as a result.

The continued health in the consumer sector will be key to growth in the U.S. economy. Given consumers’ relatively strong financial positon lenders are willing to extend them credit. In fact, the Fed’s recent Survey of Consumer Expectations found that consumers perceive that credit is easier to access than a year ago. As long as these conditions hold, talk of a recession in the near term is likely premature.

Curtis Dubay is a senior economist at ABA. Jack McCabe is an economic research specialist at ABA.