US credit card balances pass $1 trillion

Total credit card balance in the US have soared past $1.03 trillion, hitting a new record, according to the Federal Reserve Bank of New York’s Quarterly Report.

US credit card balances pass $1 trillion

Q2 2023 was the first time credit card debt surpassed the $1 trillion threshold in nominal terms since the New York Fed began tracking the data in 2003.

Credit card balances grew annually by 16.2% and 4.6% from Q1.

“Credit card balances saw brisk growth in the second quarter,” wrote Joelle Scally, regional economic principal within the Household and Public Policy Research Division at the New York Fed.

“Not only have balances grown, but credit card issuance rates are also on the rise, with 24 million new accounts opened during Q2.”

There are now 70 million more credit card accounts open than there were in 2019, before the pandemic. About 69% of Americans had at least one credit card last quarter.

Credit card balances were the fastest-growing category of debt. Total household debt increased only 0.1% to $17.06 trillion.

Although part of the surge in credit-card balances can be attributed to an increase in the number of accounts and rising interest rates—the average is now 20.93%—continued consumer spending is part of the story.

And with Americans’ surplus savings dwindling, there simply hasn’t been enough progress in getting Americans to pull back on their purchases, said Wendy Edelberg, director of The Hamilton Project and a senior fellow in Economic Studies at the Brookings Institution.

It’s particularly true among wealthier consumers who haven’t been negatively impacted by inflation and higher rates.

As long as spending remains elevated, the Federal Reserve’s inflation fight will be a slog. But if Americans’ debt load gets too far out of hand, that too could cause economic turmoil that could push the US into a recession.

“To get household finances and, indeed, the broader economy on a healthy track, goods spending – in real terms – just has to outright decline,” Edelberg said.

While there have been a couple of months where US retail sales have declined outright, most recently in February and March, there needs to be a “string” of negative retail sales numbers to show a sustained pullback in spending, she said.

Retail sales hit $689.5 billion in June, rising 0.2% from May, but overall have been fairly flat in recent months.

Prior to the 2008 financial crisis, credit card delinquencies were “fairly widespread” and ticked even higher during that downturn, according to New York Fed researchers.

Yet the current rates – while above the extraordinarily low numbers seen during the pandemic, when people were spending less and government stimulus was helping households – are still within historic norms.

While delinquency rates have edged up, they appear to have normalized to pre-pandemic levels.

Really frightening delinquency rates tend to hit when consumers lose their jobs and then struggle to pay their debts. Thanks to the surprisingly resilient labour market, that hasn’t come to pass yet in a big way.

The unemployment rate for July, for instance, actually ticked down to 3.5%.

The headwinds are mounting, though. Various loans are becoming harder to obtain. The Fed’s tight monetary policy finally seems to be putting a slight dent in rate-sensitive sectors and the labour market is showing signs of gradual cooling.

All of that is brewing up a stark choice for many consumers: cut back on spending or take on more debt—and in many cases, very expensive debt.

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