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


As retail sales took a breather in December, so did credit cards.

U.S. consumer debt outstanding rose by $11.56 billion at the end of the year, according to Federal Reserve data released Tuesday. That’s the smallest monthly gain since January 2021 and below economists’ expectations of $25 billion.

For most of 2022, consumer debt levels rose at record rates as demand increased compared to periods of rising inflation due to the pandemic.

However, as the year drew to a close—and the Federal Reserve raised interest rates to combat inflation—this rapid spending activity was tempered.

“Long story short, we’re seeing a more cautious consumer,” said Ted Rossman, senior industry analyst at Bankrate.

“Consumer spending certainly isn’t falling off a cliff, but we’re seeing a lot of evidence that Americans are becoming more reluctant to make certain purchases, particularly big spenders and physical goods,” he said. ” They said. “Services spending has been stronger, perhaps still because of the demand that accumulated during the pandemic for things like travel and food and drink.”

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

Still, balances that are rising in a month when spending was low likely reflect the damage caused by higher interest rates, Rossman said.

Rossman cited data from Bankrate that the average credit card charges a record 19.95 percent, which also shows that 46 percent of cardholders carry a balance from month to month. That’s up 39 percent from a year ago.

“Although spending may increase slightly, high inflation and high interest rates are making it difficult to pay off balances,” he said. “More and more people are putting needs on credit cards and financing those expenses over time.”

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