# The Numbers

In August, consumer credit experienced a significant decline, marking the largest drop since the beginning of the pandemic in 2020. This decline can potentially be attributed to individuals starting to repay their college loans.

According to Federal Reserve data, consumer credit shrank by $15.6 billion in August, surpassing the decline seen in May 2020. Economists had previously forecasted a $12 billion increase according to the Wall Street Journal.

The decline in consumer credit was solely observed in non-revolving credit, which includes auto and student loans. Outstanding credit in this category plummeted by $30.3 billion.

During the pandemic, student loan payments and government interest were paused. However, in September, interest started accumulating once again after the Biden administration's debt relief plan failed. The plan was rejected by the Supreme Court in June.

To evade additional interest charges, it seems that some student loan borrowers proactively initiated payments ahead of schedule.

Key Data

In August, revolving credit, such as credit card debt, demonstrated an annual growth rate of 14%. This suggests that Americans are increasingly relying on debt to finance their purchases, possibly indicating growing financial strain. The use of "buy now and pay later" plans is also becoming more prevalent.

Recently, credit card debt surpassed $1 trillion for the first time ever, and delinquencies are on the rise. However, other data indicates that households are still relatively stable financially.

On the other hand, non-revolving credit, which comprises auto and student loans, experienced a decline at a rate of 10%. This category of credit tends to be less volatile.

It is important to note that the report does not include mortgages, which represent the largest category of household debt.

Big Picture

Higher interest rates have made consumers more cautious about taking on additional debt. With mortgage rates reaching around 8%, many individuals have been excluded from the housing market.

Nevertheless, more Americans are relying on credit cards to cover everyday expenses.

Market Reaction

On Friday, the Dow Jones Industrial Average (DJIA) and the S&P 500 index (SPX) experienced positive growth in their respective trades.

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