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Consumer Credit Up, But Credit Card Usage Down

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The Federal Reserve released its August report on consumer credit this week, showing an increase in outstanding credit generated by growth in student and auto loans.

Consumer credit increased at an annual rate of 5.4% in August. That growth comes despite consistent decline in revolving credit, like credit cards, since June. Revolving credit declined at an annual rate of 1.2% in August.

The growth in consumer credit comes from the 8% increase in nonrevolving credit in August. Nonrevolving credit encompasses credit with a fixed life, like mortgages, auto loans and student loans, but the Fed’s data does not include credit related to real estate. The report did not specify outstanding amounts of student loans or vehicles for August, but both grew in the first two quarters of the year.

“The interesting thing is that we saw a downtick in the pace of auto sales last month,” said Samuel Rines, an economist at Chilton Capital Management. He was referencing the auto sales decline in September. “Motor vehicles have been a consistent uptick but have started to flatten over the last year. If interest rates start to pick up you’re likely to see the flattening out of that rise.”

Despite the decline in auto sales that will likely be reflected in the next consumer credit report, Rines said the trend of increasing nonrevolving credit and decreasing revolving credit is likely to continue.

“As interest rates go higher, it’s going to be much more difficult to maintain that revolving credit,” Rines said, noting that that interest rates, while low, are likely to level or increase.

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