Americans are feeling more confident in their financial positions and are shopping more, but their level of credit card debt is the highest it’s ever been.
New data from the Federal Reserve and a related study by WalletHub shows that credit card debt in the U.S. reached $1.01 trillion by the end of fiscal 2017, beating out the previous record of $984 billion at the end of 2008 and the start of 2009, the tipping point of the Great Recession.
WalletHub found that in the fourth quarter of last year alone, U.S. consumers added $67.6 billion in credit card debt — the highest quarterly accumulation in three decades and a rate that’s nearly 70 percent higher than credit card debt accumulation around and immediately after the 2008 recession. Adding to that, 2017 as a whole saw the addition of about $92 billion in new credit card debt, or debt that wasn’t carried over from previous years, which is the most for any year since 2007.
Alina Comoreanu, a senior researcher at WalletHub, said that such a historic level of credit card debt is simply “not good.”
“It’s not a question of whether consumers are weakening financially, but rather how long this trend toward pre-recession habits will last and just how bad it will get,” she added.
The average American household had $8,600 in credit card debt at the end of the year, up 6 percent from the average of $8,131 at the end of 2016, according to the survey.
Despite so much debt among consumers, charge off rates, or the percentage of debt that lending entities expect to never recover, remain around historic lows, coming in at 3.6 percent at the end of 2017. WalletHub said this “continues to fuel lenders’ appetites for extending credit,” but added, “There will be a tipping point eventually.”
In its report, the Fed cited retailers as saying increased consumer confidence could explain an increase in shopping since November, and noted many retailers are “optimistic” that sales will continue to rise at least during the first part of this year.
Indeed, the U.S. Consumer Confidence Index has increased over the last few months and in February hit the highest level since 2000. Lynn Franco of business researcher The Conference Board, an affiliate of Nielsen, said consumers were optimistic “about short-term prospects for business and labor market conditions, as well as their financial prospects.”
But the CCI belies the Fed’s description of the American economy and labor market. While there are still jobs available, companies “across the country” reported demand for qualified workers that outstrips supply, leading to a tighter job market overall. Wages in some states saw “moderate” growth due to increased competition for workers, but “few” companies cited the passage of tax reform as cause for the increases.
Inflation is also on the rise, according to the Fed, which found the costs of everything from steel to home and office rents have increased moderately across the U.S. Meanwhile, wages in the U.S., adjusted for inflation were only 10 percent higher in 2017 than they were in 1973, according to U.S. Census data. Consumer Price Index data shows the average cost of consumer goods now is about six times what it was in 1973.
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