Latest US Consumer Debt Data May Show Some Warning Signs Ahead

Consumer Debt Data May Show Warning Signs Ahead

At first glance, the read-across from the latest data from the U.S. Federal Reserve should be encouraging. Consumers are feeling more confident — so they are borrowing more.

But the warnings signs are there if you look at other data points. The consumer may indeed be more confident at this moment in time, with the labor market strong, with stimulus having been used to pay down a key form of borrowing (that would be credit card debt). It’s worth noting, too, that the Fed’s data are a bit backward-looking and don’t necessarily account for the turbulence, on a world stage, that confronts us all now.

Taking on more debt is not necessarily bad, so long as it is manageable, and it is the manageability that may be pressured in the short term and bears watching.

Overall debt carried by the U.S. consumer grew in the aggregate in January. Total credit increased by $6.8 billion from December, and at an annualized rate, borrowing was up 1.9%, according to the Fed’s survey of outstanding credit. Revolving debt slipped by 30 basis points; non-revolving debt grew by 2.5%, but measured on an annualized basis.

Drilling down a bit into the dollar amounts, the data show that total consumer credit outstanding was $4.435 trillion, up very slightly. Outstanding revolving credit, including credit cards, fell by $218.7 million — the first decline since April, which means that non-revolving credit, which includes auto and school loans, grew by $7.1 billion.

Looking Backward — and Looking Ahead

January’s data reflect a timeframe that, just after the holiday season, would include a post-holiday season paydown of debt incurred during the weeks leading up into Black Friday, Cyber Monday and beyond.

Read more: US Consumer Borrowing Grew 1.9% in January

By taking on more school-related and auto-related debt, however, the average U.S. consumer is locking into monthly expenses that may balloon into challenges sooner rather than later.

The heightened level of confidence that may have led consumers to take on more debt as the year dawned may get a bit of shock with what’s going on, well, now. As of Tuesday morning (March 8), the price of gasoline has increased by more than 10% in the past week alone. Higher interest rates — where inflation is running at more than 7% annually — on variable debt (i.e. credit cards), makes that debt more expensive.

And taking on additional expenses, out of pocket, may be a struggle, given how many of us are living paycheck to paycheck.

PYMNTS research show that 64% of consumers lived paycheck to paycheck in January, up from 61% in December. That includes 48% of consumers earning more than $100,000 per year living paycheck to paycheck in January, representing a six-percentage-point increase from December. As many as 67% of consumers making between $50,000 to $100,000 annually live paycheck to paycheck, all of which indicates that huge swaths of the population may see some serious macro-driven headwinds challenging their ability to meet basic expenses (including debt management).

See also: Nearly Half of High-Income Earners Now Live Paycheck to Paycheck