2023-06-12 06:04:13 ET
A mountain of credit card debt is piling up as Americans turn to plastic to counter their dwindling purchasing power. According to the Federal Reserve Bank of New York, consumers now owe a record $988B on their cards, up 17% from a year earlier, or about $5,700 per person. While the steadily rising figure took a break during the pandemic years, the number is causing renewed nervousness as it flirts with the fast-approaching $1T milestone.
Driving the spike: High inflation is pushing more consumers to put non-discretionary spending on cards, while others may be having a harder time paring back their lifestyles despite the price pressures. Interest rates are compounding the issue, with the average annual percentage rate now over 20%, making it a really costly debt to carry for consumers. It's also higher than any point since the Fed started tracking card APRs in 1994, contributing to the overall U.S. household debt that topped $17T in Q1 .
"The first few years of the 2020s have seen a number of acute economic, financial, and geopolitical disruptions on a worldwide scale, and it will take time for the ultimate consequences of these shocks to be fully felt," PIMCO writes in a new article called The Aftershock Economy . SA analyst Wolf Richter also discusses the current landscape, but says that "despite Fed tightening and bank collapses, it's still an astoundingly loose financial situation ." Looking at individual stocks, investors can discover the latest SA analysis on credit credit card giants such as Visa ( NYSE: V ), Mastercard ( NYSE: MA ), American Express ( NYSE: AXP ) and Discover ( NYSE: DFS ).
What's next? While economists have been predicting a recession for over a year, it has not yet appeared, in part due to consumer spending . Some are more concerned about squeezed budgets as the Fed has not yet abandoned its hiking cycle - but is set to take more of a "skip" this week - and are closely watching carrying balances, delinquency rates and wage comparisons to determine the direction of the economy. Others see things settling down, with companies foregoing further price increases (or even cutting prices) as consumer sales cool off. That would help tame inflation and rising bills, as well as support seen from continued resilience in the labor market .
Wall Street Breakfast Survey: Rising credit card debt is just one of the factors in sizing up economic growth, but is the U.S. still headed for a recession in 2023? Take the poll and share your thoughts about it in the comments section.
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U.S. credit card debt nears the $1T mark: Is there a reason to worry?