US consumer borrowing rises most in three months on credit cards

US CONSUMER borrowing increased in May by the most in three months, reflecting a jump in credit-card balances.

Total credit outstanding rose US$11.4 billion after a revised US$6.5 billion gain in April, according to Federal Reserve data released on Monday (Jul 8). The median forecast in a Bloomberg survey of economists called for an US$8.9 billion increase for May. The figures are not adjusted for inflation.

Revolving credit, which includes credit cards, advanced US$7 billion, also the most in three months. Non-revolving credit, such as loans for vehicle purchases and school tuition, increased US$4.3 billion.

Many Americans who have whittled away their pent-up savings accumulated during the pandemic are relying on credit cards and other payment methods to spend. Combined with the rise in the cost of living, that’s further straining household finances and points to a slowdown in consumption.

That may explain a recent pullback in consumer spending. Retail sales barely rose in May and prior months were revised down, according to the latest data.

The monthly consumer credit report does not include mortgages. The latest quarterly data from the New York Fed show that household debt, including mortgages, rose to a record US$17.7 trillion in the first three months of the year. Consumers have added US$3.4 trillion in debt since the pandemic, and borrowing over the past few years is carrying much higher interest rates.

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The Fed’s report on Monday showed that borrowing rates on credit cards that charge interest rose to 22.76 per cent in May, just shy of a record in data back to 1994. A 60-month loan from a commercial bank for a new vehicle purchase stood at 8.2 per cent, also near a series high.

As at March, 3.2 per cent of outstanding debt was in some stage of delinquency, according to the New York Fed. While that’s lower than the fourth quarter of 2019, delinquency transition rates increased for all product types. BLOOMBERG