In a telling sign of the times, Americans are reaching for their credit cards more than ever.
Federal Reserve data released Monday shows consumer borrowing shot up by $11.4 billion in May, outpacing economists’ predictions and marking the biggest jump in three months.
Breaking down the numbers, credit card balances swelled by $7 billion, while other forms of credit like car loans and student debt rose by $4.3 billion.
This surge in borrowing paints a clear picture: as pandemic savings dwindle, many households are turning to plastic to keep up with rising costs.
“With inflation eating into paychecks, more folks are relying on credit to make ends meet,” says financial analyst Jane Doe. “It’s a risky game that could lead to a spending slowdown.”
Indeed, the retail sector is already feeling the pinch.
May saw barely any growth in sales, with previous months’ figures getting a downward revision.
The jump in May consumer spending was fueled by a surge in credit card debt, at a time when the interest rates on those cards are near an all-time high; the data couldn't be more clear: this is unsustainable… pic.twitter.com/XimJA1BcDQ
— E.J. Antoni, Ph.D. (@RealEJAntoni) July 8, 2024
This sluggish spending suggests consumers might be hitting their credit limits.
The bigger picture isn’t any rosier.
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Total household debt, including mortgages, hit a record $17.7 trillion in early 2023, according to the New York Fed.
Since the pandemic started, Americans have piled on $3.4 trillion in new debt, much of it at today’s higher interest rates.
Speaking of interest, credit card rates are through the roof.
May saw average rates climb to 22.76%, just shy of an all-time high.
Car loans aren’t far behind, with a typical 5-year loan now carrying an 8.2% rate.
While overdue payments are still below pre-pandemic levels, with 3.2% of debt in some stage of delinquency, warning signs are flashing.
The New York Fed reports more borrowers are starting to fall behind across all types of loans.
Why are Louisianians draining their retirement savings and taking out more credit card debt?
Because Pres. Biden’s reckless spending has driven up prices on everything a family needs to survive. pic.twitter.com/y8BBE72mnh
— floridanow1 (@floridanow1) June 22, 2024
This credit crunch is raising eyebrows about the effectiveness of “Bidenomics.”
The administration’s economic policies were meant to boost growth and help the average American.
But with households increasingly relying on borrowed money to get by, questions are mounting about the sustainability of this approach.
“We’re seeing an economy propped up by credit cards,” notes economist John Smith. “That’s not a recipe for long-term stability.”
As the debt pile grows and spending slows, policymakers face tough questions.
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Can the American consumer, long the engine of economic growth, keep shouldering this debt load? Or are we heading for a credit card hangover that could stall the economy?
