Is your card literally slowing down?
of federal reserveLatest report on Consumer finance Overall, households carried $1.5 billion in debt in December, the data showed, a notable slowdown from November’s $23.4 billion increase.
The slowdown means the annualized pace of debt growth fell to 0.4% at year-end from 5.7% in the previous month.
For revolving credit, including credit cards, the December reading shows an annualized growth rate of 1%. Interest rates rose to more than 16% in November, showing that debt is rising during the holidays.
At the same time, growth in non-revolving debt also slowed, to 0.2% in December, down from more than 1.8% in November.
The implication here is that the appetite, or even ability, to take on more debt (in almost all forms) is diminishing.
ripple effect
That could mean several things. The pace of spending will slow as consumers deal with the burden of debt already on their books. The Fed-reported interest rate on credit card debt most recently exceeded 21%, above the 15% level in 2019.
Meanwhile, separate economic data released earlier this year showed that the personal savings rate (personal savings as a percentage of personal disposable income) was 4% in the fourth quarter, compared to 4.2% in the third quarter. .
The slowdown in what could be called “debt acceptance” comes as PYMNTS Intelligence found that consumers continue to be “strategic” about where they spend their money. Consumer retail spending rose nearly 7% in December compared to the same month last year, as 51% of shoppers said they switched to another retailer to save money. 82% of consumers surveyed in early January said their wages were not keeping up with inflation.
Separately, PYMNTS Intelligence found that 23% of U.S. consumers experience debt-related financial hardship. Only 23% of credit holders expect interest rates to fall next year. In contrast, 42% of credit users expect mortgage rates to rise in 2024.
Consumers living paycheck to paycheck reported being concerned about interest rates remaining high or rising. Only 38% of consumers expect their wages to increase in “real” terms after adjusting for inflation. 83% of consumers say they are at least somewhat concerned about the current and near-term economic situation.
December’s “credit slowdown” in the latest central bank data may turn out to be a trend rather than a one-off.
