Americans are becoming ‘reluctant’ to make larger purchases, says new Fed report

Minneapolis
CNN
—

While retail sales slowed a bit in December, so did credit cards.

Outstanding US consumer credit rose $11.56 billion to end the year, according to Federal Reserve data released Tuesday. It was the smallest monthly gain since January 2021 and well below economists’ expectations of $25 billion.

For much of 2022, consumer debt levels rose at record rates as pandemic-induced pent-up demand collided with a period of runaway inflation.

However, as the year drew to a close – and the Federal Reserve raised interest rates to fight inflation – this bullish spending activity was reduced.

“In short, we’re seeing a more cautious consumer,” Ted Rossman, senior industry analyst at Bankrate, told CNN.

“Consumer spending is certainly not falling off a cliff, but we are seeing ample evidence that Americans are increasingly reluctant to make certain purchases, especially larger expenditures and the acquisition of goods. physical,” he said. “Spending on services has been more robust, perhaps still due to the pent-up demand that has built up during the pandemic for things like travel and restaurants.”

Revolving credit balances, which are mostly credit cards, rose 7.3% in December, according to Tuesday’s report. This is the lowest month-over-month increase since the summer of 2021, Rossman noted.

Still, those balances rising in a month when spending fell likely show the consequences of rising interest rates, Rossman said.

The average credit card charges a record 19.95%, Rossman said, citing Bankrate data that also showed 46% of cardholders carry a balance month-to-month. That’s up from 39% a year earlier.

“Even if spending is down a bit, high inflation and higher interest rates are making balances harder to pay off,” he said. “More and more people are putting necessities on credit cards and funding those expenses over time.”