US consumer borrowing experienced a significant increase in October, exceeding expectations and marking the most substantial rise in credit card balances since mid-2022. This surge points to a potential shift in consumer spending habits and raises questions about the overall economic outlook.
Total credit outstanding expanded by $19.2 billion in October, following a revised $3.2 billion increase in September, according to data released by the Federal Reserve. Economists surveyed by Bloomberg had anticipated a more modest $10 billion gain. These figures are not adjusted for inflation.
A major driver of this increase was the $15.7 billion surge in revolving debt, primarily attributed to credit card usage. October’s spending spree coincided with major retail events like Amazon’s Prime Day, along with promotional offerings from Walmart and Target, likely contributing to the significant jump in credit card balances.
Credit card usage surged in October.
Non-revolving credit, encompassing loans for automobiles and education, saw a more moderate increase of $3.5 billion. This rise aligns with data from Ward’s Automotive Group, which reported the strongest pace of auto sales in over three years for October.
Despite the Federal Reserve’s recent 0.75 percentage point reduction in its benchmark interest rate since September, the impact on consumer borrowing costs is expected to be gradual. While increased incomes have helped many manage higher borrowing expenses, lower-income households are facing greater financial strain. Federal Reserve Chair Jerome Powell acknowledged this disparity, noting the overall positive economic data while recognizing the pressures on lower earners.
A November report from the New York Fed revealed a slight uptick in consumer debt delinquency. The report indicated that 3.5% of outstanding consumer debt was in some stage of delinquency during the third quarter, a rise from 3.2% in the preceding quarter. Delinquency rates for auto loans, specifically those with payments 90 days or more overdue, increased to 2.9%. This increase in delinquencies suggests potential challenges for some borrowers in meeting their debt obligations.
In conclusion, the substantial rise in consumer borrowing in October, fueled by a surge in credit card spending, signals a complex economic landscape. While robust consumer activity can drive economic growth, the increasing reliance on credit and rising delinquency rates warrant careful monitoring. The long-term effects of these trends, coupled with the Federal Reserve’s monetary policy adjustments, remain to be seen.
