In January, American households slammed their wallets shut.
Total household borrowing rose $6.8 billion from the previous month after a revised $22.4 billion gain in December, the Federal Reserve said on Monday. Compared to last year, consumer credit increased by 1.9 percent.
This was much slower growth than the $21.5 billion forecast of economists polled by Econoday.
Revolving credit, which is mostly made up of credit cards, was down $218.7 million, the first drop since April. A more stable category of non-revolving loans, primarily auto and student loans, rose $7.1 billion.
Economists keep a close eye on consumer credit because an expansion in consumer credit tends to lead to an expansion in overall economic activity. This is because credit use increases when consumers are optimistic about their economic outlook.
The figures for January are all the more striking because they are not adjusted for inflation. Prices rose by 7.5% in January compared to last year, which means that real consumer loans have decreased significantly compared to last year. Compared to December, consumer prices rose by 0.6 percent.
Consumer credit may have been held back by the micron wave that pushed the number of coronavirus cases to an all-time high. Rising prices and expectations of even higher inflation may also lead some households to take up defensive savings. The expectation of higher interest rates may also make some consumers reluctant to take out loans.