U.S. consumer borrowing unexpectedly declined, marking the first decrease in 2024, primarily dragged down by a reduction in revolving credit.
Data released on Wednesday showed that consumer credit balances decreased by approximately $182 million in May, following two consecutive months of significant growth. The median forecast from a survey of economists was for an increase of $17.5 billion.
The decline was largely driven by a $5.3 billion drop in credit card and other revolving credit balances, representing the largest decrease so far in 2024. Meanwhile, non-revolving credit, such as auto and student loans, increased by $5.1 billion. The report does not include mortgage debt.
Despite recent price shocks in the energy sector, particularly for gasoline, following geopolitical tensions, U.S. household spending has shown resilience in recent months. This latest data suggests that after recording the largest two-month increase in consumer borrowing in over three years, American consumers have begun to pay down some of their debt.
Recent declines in gas station prices have started to boost consumer confidence and may further alleviate household financial pressures in the coming months. However, the overall cost of living is expected to remain high in the near term, with price increases in several sectors continuing to outpace wage growth.
For U.S. consumers carrying credit card balances, high interest rates continue to pose a significant financial burden. As of May, the average interest rate on interest-bearing credit card accounts stood at 22.15%. Furthermore, with investors betting on the possibility of further interest rate hikes this year, borrowers are unlikely to see relief from financing costs in the short term.
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