The numbers: The amount of credit consumers used in January grew by a scant $6.8 billion — the smallest increase in a year — signaling that households sharply reduced borrowing early in 2022.
Economists had been expecting a $24 billion increase, according to the Wall Street Journal forecast.
Borrowing rose at a 1.9% annual rate in January.
By contrast, the rate of credit had surged by 6.1%, 10.8% and 6.9% in the final three months of 2021, Federal Reserve data showed. Americans borrowed the most money in 10 years toward the end of last year.
The big slowdown in credit stems from a variety of factors: Record coronavirus cases, rising prices, high inflation, limited availability of new cars and households taking a breather after spending big during the holiday season.
What’s unclear is whether it’s the start of a trend or just a one-off.
How much credit households use is seen as a good window into the strength of the economy. Consumers to end to borrow more when times are good and cut back when the economy is weak.
Key data: Revolving credit, like credit cards, fell by a 0.3% annual rate in January. That’s the first decline since last April.
Auto and student loans, known as non-revolving credit, rose 2.5%. That category of credit is much less volatile.
The report does not include mortgage loans, which is the largest category of household debt.
Big picture: After cutting their debt in 2020 during the early stages of the pandemic, Americans borrowed heavily last year. Yet with inflation running rampant and interest rates rising, it’s unclear whether they will borrow as much this year to buy cars, houses and other big-ticket items.
Economists point out that households still have plenty of savings and that wages are rising due to the tightest labor market in decades. So Americans still have the means to spend.
How much they are willing to spend will determine if the economy keeps a steady speed or slows sharply in 2022.
Market reaction: The Dow Jones Industrial Average
the S&P 500 index
sank in Monday trades after oil prices surged again. The U.S. and other countries are weighing sanctions on Russian oil because of its invasion of Ukraine,