Credit Use Grows Despite Slow Home, Auto Sales

Following a year of increased home sales and prices, it remains to be seen if that trend will continue in 2014. The same goes for auto sales. So far, both markets saw declines in January.

Consumer use of nonrevolving credit (like auto loans, personal loans and other financing options) tends to correlate with home and auto sales, said Samuel Rines, an economist with Chilton Capital in Houston, so he was surprised when the Federal Reserve reported nonrevolving credit growth for January.

“When you see those big jump-ups, it makes you wonder who’s taking [loans] out and what they’re doing,” Rines said.

Outstanding consumer credit surpassed $3.1 trillion in January, according to the monthly report from the Fed. Of that, $2.26 trillion is nonrevolving credit, which grew at a seasonally adjusted annualized rate of 7.5% at the start of the year. In December, it grew at 6.9%.

Revolving credit was a different story. After a few months of ups and downs following the government shutdown, consumer use of products like credit cards remained flat, with the annualized growth rate down just 0.3% in January. It accounts for just less than $856 billion of outstanding consumer credit.

That’s a little easier to explain — the harsh winter had an impact on spending.

“It wasn’t the consumer going, ‘I need to stop spending,'” Rines said. “It was, ‘It’s freezing outside. I’m not going to go shopping.'”

It’s possible the nonrevolving credit continued to grow as people who bought homes a few months ago are financing large purchases, like furniture, as they fill their new homes, Rines said. Still, he expects nonrevolving credit growth to slow in relation to the slowing auto and home sales saw in the last few months. Similarly, consumers will probably start spending more on their credit cards as spring approaches.