Consumers racked up more debt in June, but at the slowest pace in 3 months

Consumer spending is the ‘linchpin’ of the economy, said Chicago Fed President Charles Evans on Wednesday.

The numbers: Consumer borrowing expanded at the slowest pace in three months in June, as credit-card debt contracted, Total consumer credit increased $14.6 billion. That’s an annual growth rate of 4.3%, down from a 5.3% rate in the prior month. Economists had been expecting a $16 billion gain in June, according to Econoday.

What happened: Revolving credit, primarily credit cards, fell 0.1% in June, after increasing by 8.4% in May and 7.6% in April. It’s the first decline in revolving credit since March. Non-revolving credit, typically auto and student loans, rose 5.8% in June. Non-revolving credit tends to be less volatile than credit-card debt. The data does not include mortgage loans.

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Overall consumer credit expanded at a 4.9% annual rate in the second quarter, up from a 4.2% rate in the prior three months.

Big picture: If the weakness in credit-card borrowing continues, it could mean that consumers are pulling back from making major purchases. That, in turn, would be big news for the Federal Reserve, where officials are watching the health of the economy closely as the pace of growth slows this year. Healthy consumer spending is the “linchpin” for relatively optimistic for growth this year, Charles Evans, the president of the Chicago Fed, told reporters earlier Wednesday. The central bank thinks that consumers have not over-borrowed. Fed Chairman Jerome Powell said households “are in very good shape overall.”

Market reaction: Stocks recovered after opening sharply lower. The Dow Jones Industrial Average   was down only 18 points in afternoon trading after being down by more than 600 points earlier.

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