Shocking Drop In Auto Loans Results In Weakest Consumer Credit Print Since 2020

We said last month that both credit card debt and interest rates on credit cards had reached record levels.

The trajectory is unsustainable

It was only a question of time before US consumers who were heavily indebted hit a brickwall. The brick wall has finally arrived, one month after the Fed released its latest report.

Consumer Credit Report

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In May, US consumer credit increased by only $7.24BN. This is down more than half from the revised downward $20.3BN of April.

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.... a massive miss compared to the consensus estimate of $20 billion. This was actually the fourth miss in the last six months.

This was the lowest increase in consumer debt since November 2020. For an economy like the US, which is completely reliant upon credit growth, such a semi-stagnant reading is equivalent to contraction.

While one might think that, after several months, we'd finally see a decline in the revolving-credit series, this was not true. In fact, revolving-credit rose by an impressive $8.5 billion in May.

This was a shocker because the non-revolving credit segment, which includes student and auto loans and dropped unexpectedly by $1.3 billion. It is shocking because, while the monthly changes in revolving credits can vary significantly from month to month; the increase of non-revolving loans has always been consistent at $10+ billion. This has only been the case for the last 6 months. As shown below, the increase in monthly non-revolving credits has dropped sharply.

After 5 months of declines, which finally printed negative at a total of -$1.26 Billion, the first negative printing since April 2020!

We don't yet know if this slowdown was caused by student or auto loan reversals - we'll get that information next month when the Fed releases its quarterly update. However, it's safe to assume, at a moment when student loans remain in forbearance, even if just for a few weeks longer, that auto loans are the main culprit. The rate for new 60-month car loans is approaching the highest ever recorded at 7.81%. This is only a little below the record-breaking 7.82%

The (record) debt on credit cards will reverse as non-revolving loans shrink. Credit card interest rates are also at an all-time high of 22.16 %...

We won't be waiting long.