US consumer credit growth slows in April; recovery expected in coming months

The US consumer credit slowed in April after rising sharply in March. Consumer credit was up USD 13.4 billion in April. Most of the slowdown was due to revolving credit, which rose USD 1.6 billion after rising sharply by USD 10.4 billion in March. Moreover, non-revolving credit slowed as well in April. 

The slowdown seen in the start of 2016 seems quite transitory. A similar pattern was seen in 2015, where consumer credit moderately rose in the beginning of year and then recovered pace in the second quarter.

The consumer credit’s fundamental seems strong in spite of a moderation in the rate of gains in employment in May. In the past year, labor market tightened, which should help support the further borrowing of consumers in the future, said Wells Fargo in a research report.

Even if headline consumer credit is expected to expand at a steady rate, the underlying composition of growth is expected to alter throughout 2016, added Wells Fargo. Revolving credit is likely to account for a bigger share of the consumer credit growth moving forward. Meanwhile, non-revolving growth is expected to slow.

Loans for education and autos are the two major components of non-revolving credit. Slower growth in student lending was not unexpected, given the faster rate of borrowing in the recession in this sector, noted Wells Fargo. In the beginning of 2016, auto loans eased; however, they remain quite strong.

Larger vehicles account for a rising share of vehicle sales that might result in a more rapid pace of growth in auto lending. Moreover, the share of purchase price, which is financed, has grown in the last two years. However, there is still a possibility that the growth rate in auto lending will level off as the number of units sold remains stable, according to Wells Fargo.

“As the pace of growth in the two largest components of nonrevolving credit is set to level off or slow further, we expect to see revolving credit make up some of the difference”, added Wells Fargo.