LIVE MARKETS-Consumer credit balances surge as Americans whip out their plastic

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CONSUMER CREDIT BALANCES SURGE AS AMERICANS WHIP OUT THEIR PLASTIC

U.S. consumers increased their collective credit balance by $40.85 billion in December, or 230.8% more than analysts expected.

The spike more than made up for the previous month's net $5.37 billion paydown.

Looking beneath the hood of the Federal Reserve's report, non-revolving credit - which includes big ticket items such as cars and tuition - jumped 112.4% to $17.99 billion.

Revolving credit, which covers credit card debt, soared by $22.86 billion, reversing November's $13.84 billion reduction.

So what's behind this surprise burst of credit spending?

"Perhaps (the surge is) in anticipation of an improving economy and lower rates on credit card debt under the Trump administration," says Tim Ghriskey, senior portfolio strategist Ingalls & Snyder. "But it raises a huge red flag regarding the risk consumers are taking given the size of this debt increase."

Added together, total American consumer debt now sits at $5.146 trillion, or well north of the IMF's 2025 GDP estimate for Germany.

Looking at revolving credit in particular, why are Americans busting out the plastic?

Wage growth (as demonstrated by Friday's employment report) has been running hotter than core consumer prices since August 2023, but inflation on items such as shelter, services and food remains elevated.

Consumer expectations have declined for the last three consecutive months, according to the University of Michigan.

The saving rate - or, the unspent portion of disposable income - dipped to 3.8% in December, the lowest in two years.

"People are finding it harder to make ends meet," Peter Cardillo, chief market economist at Spartan Capital Securities tells Reuters. "That's one of the reasons why Trump, won the way he did because of the cost of food."

"An individual can only borrow so much before they max out, and then you have a problem," Cardillo adds. "So that could be pointing to a very dangerous situation where you might have, you know, many consumers, you know, paying their bills and going bankrupt."

"It's a major danger for the economy."

(Stephen Culp)

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