U.S. consumer borrowing hit $23.75 billion in November. Plus, outstanding credit balances breached the $5 trillion mark for the first time, with credit card delinquencies reaching levels not seen since 2012.
01/15/2024 4:30 P.M.
2.5 minute read
A new Consumer Credit Report from the Federal Reserve Bank of New York, released last week, reveals an unexpected spike of $23.75 billion in consumer borrowing for November, more than doubling economists’ expectations of a $9 billion increase, according to a recent CNN article.
This surge pushed outstanding credit balances beyond the historic $5 trillion mark for the first time, with revolving credit, largely comprising credit card usage, soaring by nearly $19.5 billion, which marked the third-highest monthly increase on record since 1943.
While higher revolving debt can indicate increased consumer spending and economic activity, it has also raised concerns among financial analysts. Ted Rossman, Bankrate senior industry analyst, noted that credit card and Buy Now, Pay Later (BNPL) usage appeared to skyrocket during the holidays, further burdening consumers who already carried substantial debt loads.
“That seems to debunk the ‘normalization’ thesis offered by banks and card issuers — as in, delinquencies were artificially low during the pandemic because of stimulus and people spending less, so we knew they would rise back to 2019-ish levels,” Rossman said.
The concern over rising debt is heightened by the fact that Americans are now experiencing the highest level of delinquencies since 2012, surpassing the predicted level proposed by banks and card issuers. The surge in credit balances during the holidays, coupled with existing hefty debt loads, is ringing alarm bells within financial circles.
Despite robust spending throughout the year, there are indications that the pace of spending may begin to slow. A separate report by the Federal Reserve showed a drop in consumers’ median spending growth expectations in December to 5.02%, the lowest since May 2021. This decline, however, is accompanied by an improvement in Americans’ overall feelings of optimism about the economy and inflation.
On the inflation front, the report highlights a noteworthy shift in consumers’ expectations. Median inflation expectations for one year ahead have fallen to the lowest level in three years. The decline in expectations is viewed positively, according to the Federal Reserve, indicating a potential relief from the persistent inflation that has impacted Americans’ purchasing power.
Responding to economic indicators, the Federal Reserve has signaled the possibility of three rate cuts in 2024. Lower interest rates could stimulate the economy by making it easier for consumers to finance major purchases. However, this move also signifies a shift away from the era of “peak savings rates,” indicating a balance between economic growth and monetary policy adjustments.
Despite the concerns over rising debt, the survey reveals a generally optimistic outlook among consumers regarding credit access and overall financial health. Respondents are less pessimistic about their current household financial situation compared to the previous year, and the outlook for the year ahead is also more positive. While projected earnings growth has dipped, consumers remain upbeat about the U.S. labor market’s resilience.
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