US consumer credit jumps $40.8 billion in December

U.S. consumer credit increased by $40.8 billion in December, reversing a $5.4 billion decline in the prior month, the Federal Reserve said Friday. The move marked the strongest percentage gain since June 2022, signalling a sharp year-end pickup in household borrowing.

The increase was concentrated in revolving credit, the category that typically includes credit-card debt. According to the Federal Reserve, revolving credit rose at a 20.2% annual rate in December after falling at a 12.1% rate in the previous month.

Revolving credit is a flexible form of borrowing in which consumers can draw on an approved line, repay part or all of the balance, and borrow again. Credit cards are the common example, and that structure can make the category more sensitive to changes in spending patterns, repayment behaviour and short-term financing needs.

Nonrevolving credit also expanded, though at a slower pace. The Federal Reserve said the category, which mainly covers auto loans and student loans, rose at a 5.8% annual rate in December, following a 2.7% increase in the prior month.

Nonrevolving borrowing generally consists of loans with fixed terms rather than open-ended credit lines. A borrower receives funds for a specific purpose, such as purchasing a vehicle or financing education, and repays the loan over time under agreed terms. The category is typically less volatile than credit-card borrowing, according to the report.

Credit-card borrowing drove the monthly swing

The December data showed a clear reversal from the prior month, when total consumer credit contracted. The $40.8 billion increase followed a $5.4 billion decline, leaving revolving balances as the main driver of the change in direction.

The Federal Reserve reports consumer credit in dollar terms and annualized growth rates. The annual rate translates the monthly change into the pace that would result if the same movement continued for a full year. It does not mean balances rose by that full percentage in a single month.

For investors and policymakers, consumer-credit figures help track the use of household balance sheets alongside other measures of spending, income and credit conditions. The December report showed consumers made greater use of borrowing at the end of the year, with credit-card-type debt accounting for most of the gain.

The Federal Reserve did not provide, in the reported figures, a breakdown of the reasons households borrowed more in December. The data also did not attribute the increase to any specific lender, region or consumer-income group.

This story draws on original reporting from MarketWatch Market Pulse.