Credit Card Spending Sagged Again in April Suggesting American Consumers Are Tapped Out

June 11, 2024

American consumers kept their credit cards in their pockets for the second straight month in April, a bad sign for an economy that has run on plastic for the last year.

After cratering in March, revolving credit contracted in April. 

Meanwhile, non-revolving credit continued to grow at a tepid rate, a trend we've seen for well over a year.

Both of these data points, along with the crash in retail sales in April and slowing GDP growth signal the American consumer may well be tapped out. 

Overall, consumer debt grew by $6.4 billion in April, a 1.5 percent annual increase, according to the latest data from the Federal Reserve. Americans now owe $5.05 trillion in consumer debt.

The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, U.S. households are buried under a record level of debt. As of the end of 2023, total household debt stood at $17.5 trillion

Pundits and politicians have talked up the "robust economy" and the "resilient" American consumer for months, but this economic growth was brought to you by Visa and Mastercard. Now, it appears the Americans might have maxed out their credit cards, or they're at least feeling the strain of sky-high interest rates.

Revolving debt, primarily reflecting credit card balances, contracted by $500 million in April, a 0.4 percent decline.

Even with this slight decline in revolving debt, Americans still owe $1.34 trillion.

The double whammy of rising debt and interest rates exacerbates the debt problem. Average credit card interest rates eclipsed the previous record high of 17.87 percent months ago. The average annual percentage rate (APR) currently stands at 20.68 percent, with some companies charging rates as high as 28 percent.

This is one of the problems confronting the Federal Reserve. Even though inflation remains sticky, the central bank needs to ease interest rates before they bury debt-saddled American consumers.

Consumer debt is also putting strain on banks. The net charge-off rate on credit card loans came in at 4.15 percent as of the end of 2023. It was the highest rate for this portfolio reported by the banking industry since the first quarter of 2012.

All of this underscores the fundamental problem of running an economy on credit cards. It’s expensive and they have an inconvenient thing called "a limit."

And it appears American consumers may be at that limit. This could be part of the reason GDP growth unexpectedly fell in the first quarter.

The growth in non-revolving debt also reveals problems in America's borrow-and-spend paradise. 

Non-revolving debt, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, increased by 2.2 percent. The March number was revised down to a contraction of 0.9 percent. This continues a trend of sagging spending on big-ticket items that we've seen in recent months. Before the pandemic, revolving credit growth averaged 5 percent. 

This plunge in spending was inevitable. The post-pandemic economic rally was never sustainable. 

As prices skyrocketed last year, Americans blew through their savings to make ends meet. Aggregate savings peaked at $2.1 trillion in August 2021. As of June 2023, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.

In other words, Americans ran through $1.9 trillion in savings in just two years. 

Then they turned to credit cards.

Now that they've apparently maxed out the credit cards, what happens?

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Spanish Conquistadores invaded the Inca Empire in 1528 to steal their silver and gold.

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