US consumer borrowing unexpectedly drops by most since 2024

US CONSUMER borrowing unexpectedly declined for the first time since 2024 on a drop in revolving credit. 

Total credit outstanding decreased by about US$182 million in May after sizable increases in the prior two months, Federal Reserve data showed on Wednesday (Jul 8). The median estimate in a Bloomberg survey of economists called for a US$17.5 billion advance.

The pullback was driven by a US$5.3 billion decline in credit-card and other revolving debt outstanding, which also marked the biggest decline since 2024. Non-revolving credit, such as loans for vehicle purchases and school tuition, rose US$5.1 billion in May. The report doesn’t include mortgages.

Household spending has remained resilient in recent months even as the oil shock from the Iran war pushed prices, particularly for petrol, higher. The data suggests Americans are beginning to pay down some debt after the biggest back-to-back increase in consumer borrowing in more than three years. 

The recent decline in prices at the pump is already making consumers more optimistic and may offer some relief in the months to come. That said, costs are expected to stay elevated in the short term, and inflation continues to outpace wage gains in an array of sectors.

For Americans carrying credit-card balances, high rates charged on those accounts can be a sizable financial burden.

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As of May, the average rate on credit-card accounts with assessed interest was an elevated 22.15 per cent. And with investors betting the Fed may hike rates this year, borrowers are unlikely to get any relief on that front in the near term. REUTERS