In July, the mainstream financial media breathlessly reported that consumer spending was “holding up” based on better-than-expected retail sales. But how did consumers manage to spend all of that money?
They borrowed it.
After a pause in June, American consumers went back to charging up their credit cards in July.
Since price inflation took off in the wake of pandemic-era stimulus, Americans have blown through their savings and run up their credit cards to make ends meet. Now they’re starting to have a hard time paying those credit card bills.
The number of Americans rolling credit card debt from month to month is now higher than the number of people paying their bills in full for the first time ever.
Flashing another recession warning sign, credit card spending suddenly fell off a cliff in June.
American consumers have been using credit cards to make ends meet for months, but with credit card debt at record levels, rising interest rates appear to have slammed the door on spending. Credit card debt contracted in June for the first time since April 2021, according to the most recent data released by the Federal Reserve.
Despite the high interest environment intended to slow down borrowing, American consumers continue to run deeper and deeper into debt as they cope with sticky inflation.
Consumer credit spiked by another $20 billion in April, a 5.7% increase year on year, according to the latest data released by the Federal Reserve.
Total household debt eclipsed $17 trillion for the first time ever in the first quarter of 2023 as Americans wrestle with persistent price inflation.
After charting the biggest rise in 20 years during the fourth quarter, household debt climbed again in Q1, rising by $148 billion. The 0.9% increase pushed total household debt to $17.05 trillion, according to the latest data by the New York Fed.
After pulling back slightly in February, Americans went back to borrowing on credit cards in March — despite record-high interest rates. This indicates that consumers continue to struggle to make ends meet in this deteriorating economy. It also reveals that the Fed’s monetary tightening is not cooling spending as promised.
American consumers continued to pile on debt in February, but the pace of borrowing slowed significantly, another sign the economy could be heading toward a recession.
Overall, consumer debt grew by $15.3 billion in February, a 3.8% annual increase, according to the latest data from the Federal Reserve. That compares with an upwardly revised 19.5 billion increase in January.
In January, retail sales came in much hotter than expected. Now we know how consumers paid for the spending spree. They put it on credit cards.
After slowing modestly in December, growth in revolving debt spiked again in January. But a slowdown in non-revolving credit moderated the overall increase in consumer debt.
Overall, this signals a pretty bleak trajectory for the economy.
Retail sales surged in January, creating the impression that the economy is humming along nicely. After all, there can’t be a problem if consumers are out there consuming, right?
But a lot of people are ignoring a key question: how are people paying for this shopping spree?
After charting its biggest increase since 2007 in the third quarter, household debt surged again in Q4 as Americans try to borrow their way out of the squeeze soaring price inflation has put on their wallets.
Total household debt rose by $394 billion in the last quarter of 2022, according to the latest New York Fed Household Debt and Credit report. It was the biggest quarter-on-quarter rise in two decades.
