Consumers charged 11 percent less to their credit cards in September than they did in August, marking the fourth consecutive month of declining charges and the largest monthly drop this year, Citi reported.
The average credit card interest rate American consumers are paying was a staggering 22.8 percent on 31 August, the U.S. Federal Reserve said, compared to 16.3 percent a year earlier.
Over the next 12 months, that will cost consumers an extra $40 billion in interest charges alone, consumer finance website WalletHub calculated.
An increasing number of consumers have resorted to plastic to pay basic expenses such as groceries and more of them are unable to clear their balances each month, as we noted in “More Americans Unable to Pay Off Credit Card Balances,” (20 Sep 2022).
“The people carrying credit card debt are carrying it longer and not paying it down as much,” WalletHub CEO Odysseas Papadimitriou told the FT.
“Cracks” are emerging in the U.S. consumer economy, Citigroup CEO Jane Fraser said in a CNBC interview earlier this month.
TREND FORECAST: Consumer spending accounts for more than two-thirds of the U.S. economy. In articles such as “Americans Drain Their Savings to Keep Spending” (12 Oct 2022) and “Credit Card Debt Nears $1 Trillion, Sets Record” (7 Feb 2023), we have warned that current levels of consumer spending were not going to last.
With a weak holiday season already widely predicted, a deeper slump in retail sales will ripple through the economy, close businesses, cost jobs, and push the U.S. closer toward recession, which we still expect to begin late this year or early next. Of course, much of where the economy is headed will also be determined by Fed interest rate policy.
Should the Fed hold rates where they are for the rest of the year, economic growth will contract from its current levels.
As we had forecast, the Fed will lower interest next year to keep the government in power, which will in turn increase GDP growth. However, the Israel War is a wild card that could not only change the course of the economy since oil prices will spike if the United States and Israel go to war with Iran… it will crash equities and global economies.