Americans continue to rely on credit cards and loans as consumer credit jumped $38 billion in April amid the highest inflation in 40 years. (Robert Nickelsberg, Getty Images)
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WASHINGTON — Americans continue to rely on credit cards and loans, as consumer credit jumped $38 billion in April amid the highest inflation in 40 years.
The latest data from the Federal Reserve on the outstanding amount of consumer credit, published Tuesday afternoon, comes after the record increase of 52.4 billion dollars recorded in March. This figure has since been revised down to $47.3 billion.
Revolving credit, which primarily includes credit card balances, grew at an annualized rate of 19.6% and totaled $1.103 billion in April, just beating a pre-pandemic record of $1.1 trillion, according to the report.
But record revolving debt isn’t bad news, said Ted Rossman, senior industry analyst for Bankrate. “Part of that reflects rising consumer spending, which is good for the economy, of course, and also things like population growth and increased use of cards (rather than cash).”
“We had a sharp and rapid decline in credit card balances because of the stimulus, because of the pandemic, because people spent less and they paid off their debts,” Rossman said. “And now we’re seeing an equally steep comeback – much faster than something like the financial crisis (when) it took five years to find the bottom and another five to come back up.”
“This one was fast forward,” he said.
Despite some unease about the direction of the economy, consumers have continued to spend. However, the goods they buy – especially basic necessities – have seen sharp price increases in a period of high inflation.
These expenses, especially when they involve credit card debt, “can be a sign of confidence, or a sign of worry,” Matt Schulz, chief credit analyst for Lending Tree, previously told CNN Business. Some retailers have already noticed a split in the way people spend: high earners have continued to buy luxury and more expensive items, while lower income consumers are shunning the discretionary for the most part – and the cheaper ones. Furthermore.
The Fed’s monthly credit report does not provide details on how credit is used or whether outstanding balances are paid off before interest begins to accrue, so record levels of credit at the consumption might not be as negative as they seem, Rossman said.
“Some of it just reflects more card use, more e-commerce, more digital payments, people using less cash,” he said. “In some ways, higher credit card balances may reflect the growth of the economy. You just don’t want it to grow to the point where people are falling behind. [and] get into expensive debt.”