Revolving Debt Hits $1.36T in July, Soars 25% Above Pre-Pandemic Levels

Monday (Sept. 9) offered up a snapshot of consumer sentiment on where inflation is headed, their overall feelings about managing a mounting debt load, and where and how they’re spending against this backdrop.

Connecting the dots between the two separate reports — the Federal Reserve Bank of New York’s reading on inflation expectations from the morning for the short- and long-term horizons, and the Federal Reserve’s Consumer Credit Outstanding report (known as G.19) from the afternoon — paints a portrait of a consumer who’s borrowing what they can, when they can, even as there’s acknowledgment that there’s a higher risk of sliding into delinquency.

The July data on consumer credit shows a significant jump in pretty much all forms of debt. Revolving debt, which includes cards, surged at an annualized 9.4% pace in July, after what looked to be a paydown (because we saw an annualized 0.3% decline) in June.

Overall revolving debt stood at $1.359 trillion in the latest reading; that line item had been a “mere” $1 trillion in 2019. Doing the math, that’s 24.8% higher than the 2019 number.

Nonrevolving debt such as auto loans and school loans was up at an annualized pace of 4.8%, accelerating from the 1%+ showings of the past several months.

The actual $25 billion bump in credit far outpaced the roughly $12 billion that had been the consensus.

According to the Consumer Expectations survey, respondents see inflation as a stable fact of everyday life, but a sticky one. The data shows that as surveyed last month, short-term and long-term inflation expectations for the next year and next five years were unchanged at 3% and 2.8%, respectively. The three-year outlook was higher, increasing to 2.5% where that reading had been 2.3% in July.

The median year-ahead expectations were up, most notably, for gas, which was 0.1 percentage point higher to 3.6%, and for rent, which were 0.2 percentage points up to a lofty 7.3%. At the same time, consumers expects that the cost of food will still grow, but at a slower pace, by 4.4%, down from a previously anticipated 4.7% pace.

Looking at the Job Market

It seems that consumers are a bit more wary about their job prospects, as the measure of unemployment expectations — whether or not unemployment will be higher a year from now — was up to 37.7%, gaining from 36.6% in July. Wage growth looks set to slightly trail year-ahead inflation as household income is expected to grow by 2.9%.

The average perceived probability of missing a minimum debt payment over the next three months increased by 0.3 percentage points to 13.6% — the highest level since the pandemic. PYMNTS Intelligence, per findings in the “The Credit Card Use Deep Dive Edition” of paycheck-to-paycheck surveys, found that 43% of the population revolves their debt — a tally that rises to 65% for those who live paycheck to paycheck with issues paying off their bills and to 51% for those who live paycheck to paycheck but without issues paying their bills.

We note that the inflation expectations data released today is from August, while the central bank’s aggregate credit outstanding data stems from July. It may not be so farfetched to think that consumers and households are taking stock of what they loaded on the cards and elsewhere on their balance sheets.

The roadmap ahead? Median household spending growth expectations increased by 0.1 percentage points to 5%, the Fed estimated on Monday.

Right now, consumer spend is outpacing wage growth and even inflation, so credit fills the gap.

We’ll have a sense of August’s realities when the core inflation and consumer price data are released on Wednesday (Sept. 11). Those data points will provide more clarity as to whether July’s embrace of credit will in fact be manageable or a be tougher pill to swallow if prices continue to rise.