Consumer Borrowing Points to Spending Slowdown

Consumers slowed their borrowing in June, according to data released by the Federal Reserve on Wednesday, in yet another sign of the toll elevated interest rates and economic uncertainty are taking on the engine of the U.S. economy.

Consumer credit increased by $8.9 billion in June, putting growth at an annual rate of 2.1%. Economists surveyed by the Wall Street Journal and Dow Jones Newswires had projected credit would increase by $9.7 billion.

“Consumers are feeling the pressure from elevated price levels and slowing income growth,” said Jeffrey Roach, LPL Financial chief economist. 

However, the Fed also revised its data from prior months higher. Wednesday’s report showed credit grew by $14 billion in May, nearly $3 billion more than was estimated in last month’s report.

Credit Card Spending Suggests Consumer May Be Losing Steam

While consumers continued to add credit, there were some signs the public pulled back on spending. Revolving credit, primarily made up of credit card accounts, declined by $1.7 billion in June, the biggest drop since March 2021.

“Softer demand for credit will likely impact lower-income consumers the most, but overall, the data suggest a slowdown in consumer spending for the rest of this year,” Roach said. 

Consumer spending accounts for well over half of U.S. GDP, which is why investors and economists closely watch borrowing and spending as an economic indicator. Strong consumer spending helped support growth in 2023 and, despite some weakening, has so far remained resilient in 2024. 

There were other signs this week that consumers were feeling the strain of borrowing. A New York Federal Reserve report showed more borrowers were falling behind on payments for both credit cards and auto loans.