In a groundbreaking report, the Federal Reserve has revealed that consumers have added more credit card debt in July, with revolving credit surging by $9.6 billion. This information comes on the heels of a minor dip in June, indicating a worrying trend of mounting credit card debt. The report also disclosed that the total outstanding consumer credit has reached a staggering $4.98 trillion, with $1.27 trillion tied up in revolving credit, such as credit cards, home equity lines of credit, and other lines of credit.

Following a report from the New York Federal Reserve that U.S. credit card debt has crossed the $1 trillion mark for the first time, this news is especially concerning. Despite a decrease from over 9% in June 2022, inflation remains above 3%, indicating that rising prices are driving consumers further into debt. Additionally, certain retailers like Nordstrom and Macy’s are reporting delinquencies, suggesting that more credit strain may be on the horizon.

Consumer Credit Balloons Amid Inflation Concerns

U.S. consumers have increasingly been adding to their credit card debt amid rising inflation rates, according to the Federal Reserve’s monthly report on consumer credit. In July, revolving credit, which includes credit cards, home equity lines of credit, and other lines of credit, grew by $9.6 billion. This follows a slight dip recorded in June.

Credit Card Debt Surges

The Federal Reserve report showed a total increase of $10.4 billion in consumer credit in July. This includes an additional $773 million for non-revolving credit such as auto loans and school loans. As a result, total outstanding consumer credit in the U.S. now stands at an astounding $4.98 trillion, with revolving credit comprising $1.27 trillion of this total.

This data comes on the heels of a report from the New York Federal Reserve which found that total U.S. credit card debt surpassed $1 trillion for the first time. Despite easing slightly from over 9% in June 2022, inflation remains above 3%, with rising prices pushing consumers further into debt.

Inflation and Debt: A Vicious Cycle

Mindy Yu, Director of Investing at Betterment at Work, stated that the surge in credit card debt is a direct result of inflation. She cited a study by Betterment that identified credit card debt as the second highest source of stress for individuals, trailing only the increased cost of living caused by inflation.

"As inflation increases, people are resorting to credit cards for expenses after their emergency savings have been exhausted," Yu said.

Retailers Hit by Credit Struggles

Michael Hershfield, founder and CEO of Accrue Savings, a firm aiming to create co-branded savings plans with retail outlets as an alternative to credit, noted that retailers are also grappling with credit issues. Hershfield highlighted that credit delinquencies were a significant concern in Nordstrom’s recent earnings report. Macy’s and Kohl’s also hinted at potential revenue challenges due to sluggish consumer credit.

Hershfield said, “Retailers are signaling to the market that the consumer is in pain. There is a portion of the American population that is struggling to pay their credit cards, and co-branded store credit cards are the first to go when they are in financial distress."

Takeaways

The rising consumer credit and inflation rates paint a worrying picture of the financial health of American consumers. As prices continue to rise, more individuals may find themselves relying on credit to cover their expenses, thereby exacerbating the cycle of debt. Furthermore, the distress signals from retailers indicate that this situation could have broad implications for the U.S. economy. Policymakers and financial institutions will need to devise strategies to alleviate this growing credit burden and mitigate its potential impacts.