By: Matt Rego
The American economy has come a long way since the 2008 recession. Once having unemployment around 10% and a ravaged housing market, unemployment now sits at a six and a half year low to 5.6% and homebuilder sentiment was recently seen at its highest point since the recession. Another huge factor is the fact that people are spending money again, as more Americans are able to find work to earn money. While spending and retail sales are a massive part of the US economy, it is pretty shocking to see American consumer debt growth and where it stands now compared to even two years ago.
Comsumer Credit Card Debt – Americans have seen “six consecutive quarters of year over year increases in credit card debt”
In 2014, Americans racked up their credit card debt load to over $57 billion. This is up 47% from 2013, when Americans ended the year with $38.8 billion in total credit card debt. Furthermore, US credit card debt in 2012 ended at $36.7 billion, which shows an even larger increase of 55% compared to 2014 figures. The good news here is that Cardhub, the website running the survey, says that credit card defaults are at a six year low, showing that while credit card debt is reaching the skies, Americans are still making payments to their cards.
Comsumer Credit Card Debt – Quarterly breakdown of debt consumption in 2014
During the first quarter of 2014, Americans cut -$32.8 billion from their credit card balances. The first quarter of the last several years has seen a consistent reduction in credit card debt, the only quarter of the year when debt is reduced to be exact. Second quarter 2014, Americans added $28 billion to their credit cards, which was a 66% increase from 2013’s $16 billion tab during Q2. The third quarter of 2014 saw a slowdown of spending compared to Q2 with $15.9 billion added to the ledger, representing a 35% increase from 2013. As you can imagine fourth quarter is always the worst quarter for spending as the holidays come around. In the fourth quarter 2014, Americans spent $45.5 billion on their credit cards, showing an increase of 6% from 2013.
Overall, the increased spending is positive as it shows consumer confidence in the economy and rapid spending expansion is good for GDP. However, in the last four years, Americans have gone to see a balance of $2.59 billion on their credit cards in 2010 to $57 billion on their cards in 2014. That is a massive jump and certainly is a cause for concern if we see default rates start to increase. Overall, the data from 2014 shows a double edged scenario where Americans are rapidly increasing their spending, but they are putting it all on their credit cards.