Evening Brief – 02.08.24

Shocking!

After several months of wild swings in U.S. consumer debt, culminating with the explosive move higher in November to the second biggest on record, households pared back their spending habits in December, as the latest consumer credit data published by the Federal Reserve revealed that total consumer debt rose by a meager $1.561 billion, which was not only nearly a 90% miss to consensus estimates of $15.9 billion but also a huge slowdown from November, sliding by almost $22 billion, the third biggest monthly drop since Covid shut down the economy.

Meanwhile, nonrevolving credit increased by $0.5 billion, while vehicle loans barely changed due to high interest rates. The main shock, however, was the dramatic decrease in revolving credit (credit card debt), which in December fell from a $15.4 billion gain in November – the second largest on record – to only $1 billion, the second smallest monthly increase, with only the June 2023 contraction being a bigger outlier.

The slowdown in debt, particularly credit card debt, is hardly surprising given that, according to the Federal Reserve, in the fourth quarter, the average rate across all commercial banks on all credit card amounts just hit a new record high of 21.47%, despite the drop in interest rates seen in late 2023.

Consumers are becoming increasingly hesitant to max out their credit cards due to record high interest rates, even though the U.S. personal savings rate has declined to 3.7% in only a few months from above 5%, the lowest level since 2022.