US Consumer Debt Climbs in May as Credit Card Balances Rise

US Consumer Borrowing

US consumer borrowing increased significantly in May, marking the largest rise in three months. This increase is primarily driven by a surge in credit card debt, indicating that more Americans are relying on credit to manage their finances amidst economic challenges.

Total outstanding credit rose by $11.4 billion in May, a considerable increase compared to the revised $6.5 billion gain in April, according to data released by the Federal Reserve on Monday.

Economists surveyed by Bloomberg had forecast an increase of $8.9 billion for May, making the actual figures considerably higher than anticipated. It’s important to note that these figures are not adjusted for inflation.

Surge in Revolving and Non-Revolving Credit

Revolving credit, which includes credit card debt, saw an increase of $7 billion in May, marking the largest gain in three months. This surge suggests a growing reliance on credit cards for everyday expenses.

Furthermore, non-revolving credit, encompassing loans for vehicle purchases and education, rose by $4.3 billion, further contributing to the overall rise in US consumer borrowing.

Impact of Rising Cost of Living

The increase in US consumer borrowing can be attributed to several factors, including the depletion of savings accumulated during the pandemic. As many Americans turn to credit cards and other forms of credit to manage their expenses, the rising cost of living is placing additional strain on household finances. This financial pressure is contributing to a slowdown in consumer spending, as evident in recent retail sales data.

Decline in Consumer Spending

Consumer spending has shown signs of slowing down, with retail sales barely increasing in May and prior months being revised downward. This decline in spending reflects the broader economic challenges faced by households as they grapple with higher borrowing costs and dwindling savings.

Record High Household Debt

While the consumer credit report excludes mortgages, recent quarterly data from the New York Fed reveals that household debt, including mortgages, reached a record $17.7 trillion in the first three months of the year. Since the pandemic began, consumers have added $3.4 trillion in debt, and the borrowing over the past few years is now subject to significantly higher interest rates.

Rising US Consumer Borrowing Rates

According to the Fed’s report, borrowing rates on credit cards that charge interest rose to 22.76% in May, just shy of a record high dating back to 1994. Similarly, a 60-month loan from a commercial bank for a new vehicle purchase stood at 8.2%, also nearing a series high. These rising rates are making it more expensive for consumers to manage their debt.

Increasing Delinquency Rates

As of March, 3.2% of outstanding debt was in some stage of delinquency, according to the New York Fed. While this is lower than the delinquency rates in the fourth quarter of 2019, delinquency transition rates have increased across all product types. This trend suggests that more consumers are struggling to keep up with their debt payments as borrowing costs continue to rise.

The significant increase in US consumer borrowing in May underscores the financial pressures facing many households. With rising credit card debt and higher borrowing costs, consumers are finding it increasingly difficult to manage their expenses.

This trend suggests a potential slowdown in consumer spending, which could have broader implications for the economy in the coming months.