Are Consumers Nearing the End of Their Road of Debt?
Are consumers getting close to the end of their road of debt?
There are some indications that they might be and that’s not good news for an economy built on consumers spending money they don’t have.
Total consumer debt grew and set yet another new record in November, according to the most recent data released by the Federal Reserve. But the rate of growth slowed and credit card debt contracted slightly for the third month out of the last four.
Total consumer debt grew by $12.5 billion to $4.176 trillion. (Seasonally adjusted). That represents an annual growth rate of 3.6%, down from 5.5% in October.
The Fed consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.
Revolving credit outstanding, primarily credit card debt, fell by $2.4 billion, a 2.7% decline. That was offset by a healthy increase of $14.9 billion (5.8%) in non-revolving credit, including student loans, automobile loans and financing for other big-ticket purchases.
Even with the decline in revolving credit card debt, Americans still owe nearly $1.1 trillion on their plastic.
But the overall trend in borrowing has fallen over the last six months and credit card borrowing has taken a noticeably steep downturn.
Some are taking the sagging level of borrowing as a warning sign. As one analyst put it in an article on Seeking Alpha:
It could be that the consumer end of the economy has reached the point at which it cannot add any more debt. Unlike the federal government which has sovereign dollars to print, the consumer has a fixed amount they can spend including paying back any loans.”
Generally, consumer spending and consumer debt tend to move in the same direction. In other words, the drop in borrowing could indicate consumers are shutting their wallets.
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