Consumer Credit Card Debt Takes a Nosedive

Unexpected Surge in Credit Card Debt

In a surprising turn of events last month, revolving credit growth, which had been steadily declining for several months, shot up unexpectedly. This resulted in total consumer credit growth skyrocketing by nearly $27 billion, marking the largest single monthly increase since 2022. As the personal savings rate in the US plummeted from over 5% to 2.9% within a year, consumers found themselves increasingly strapped for cash and equity. This situation was exacerbated as the excess savings from the Covid period were depleted, leaving little room for further credit card spending before the harsh reality set in.

Reality Sets In

Just a month after this unusual surge in revolving credit, the Federal Reserve reported a sharp decline in total consumer credit growth in August. The growth plummeted by over half to a mere $8.9 billion, falling short of the estimated $12 billion. While non-revolving credit, which is typically less volatile and more stable, grew by $10.3 billion, a significant drop from the previous month's $16 billion, it was still the second-highest monthly increase of 2024. The most notable aspect, however, was the dramatic drop in consumer-outlook sensitive revolving credit, marking the largest decline since the Covid crash.

Record High APRs

Just days before the Federal Reserve's first rate cut since the Covid crash, the average rate on all credit cards in the US reached a new high of 21.76%, up from 21.51%. It will be intriguing to see if the Annual Percentage Rates (APRs) decrease next month following the Fed's rate cut. A month ago, a prediction was made that while deposits and savings rates would drop immediately, interest rates on debt, such as credit card APRs, would barely budge, if not continue to rise.

Impact on Savings Data

Given the collapse in credit card funded spending, it is becoming increasingly clear that the government's recent upward revision of savings data from a record low 2.9% to a more comfortable 4.8%, lacks credibility.

Bottom Line

The sudden plunge in consumer credit card debt is a clear indication of the financial strain that consumers are experiencing. The record high APRs on credit cards and the dwindling savings rate paint a stark picture of the current economic climate. How do you interpret these developments? Do you believe the government's revised savings data? Share your thoughts and this article with your friends. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.