Consumers slammed the brakes on borrowing in December, Fed data show

The numbers: Total U.S. consumer credit rose by $1.5 billion in December, down from a $23.4 billion gain in the previous month, the Federal Reserve said Wednesday. That translates to a 0.4% annual growth rate in December, down from a 5.7% increase in November.

It is the slowest pace of credit growth since an outright drop in August.

Economists had been expecting a $15 billion increase in consumer credit in December, according to a Wall Street Journal forecast.

Key details: Revolving credit, such as credit cards, slowed to a 1% growth rate after a 16.6% gain in the prior month.

Nonrevolving credit, such as car and student loans, rose a slight 0.2% after a 1.8% rise in the previous month. This category of credit is typically much less volatile. The Fed data do not include mortgage loans, which is the largest category of household debt. 

Big picture: Consumers are starting to feel the pain from borrowing after having paid down balances during the pandemic.

During the fourth quarter, credit-card and car-loan delinquencies were at their highest point in more than a decade, the New York Fed reported earlier this week.

Richmond Fed President Tom Barkin said Wednesday that higher interest payments for consumers and businesses leads him to think the economy will soften later this year.

What are they saying? “For now, households aren’t drastically changing their debt trajectory when it comes to maintaining month-to-month spending on usual expenses. What we don’t know is at what point households feel they are no longer comfortable borrowing more money, and then they can’t maintain elevated spending,” said Will Compernolle, economist at FHN Financial.

Market reaction: Stocks DJIA SPX closed higher on Wednesday as the S&P 500 index finished just below the 5,000-point level. The 10-year Treasury yield BX:TMUBMUSD10Y inched up to 4.11%.