US consumer borrowing has reached record highs

American consumers are more indebted than ever. The recently released Federal Reserve Consumer Credit G.19 report shows that outstanding US consumer credit has reached historic levels; Outstanding consumer credit is now $4.7 trillion. In August, consumer credit grew at a seasonally adjusted annual rate of 8.3 percent. The previous increase in July was 6.%.

This current level of consumer debt shows that the Federal Reserve’s rate hikes have not slowed consumer borrowing. While consumer credit declined in the years immediately following the 2007-2009 financial crisis, outstanding consumer credit has increased by 90% from the second quarter of 2011 to the second quarter of this year.

In August, non-revolving loans, which consist mostly of auto, student and personal loans, grew at an annual rate of 5.1 percent. This level is roughly unchanged from July.

However, revolving credit increased significantly at an annual rate of 18.1 percent; revolving credit includes credit cards, home equity lines of credit (HELOC), and personal and small business loans. While late payments and defaults seem to be under control so far, I worry that as inflation rises, revolving credit could pose a significant problem for American consumers as their cost of borrowing increases. This problem will be exacerbated when unemployment rates start to rise.

Also of concern should be that the saving rate of Americans has declined significantly over the past two years, while borrowing has continued to increase. In January 2021, the savings rate, defined as a percentage of the available portion, was 20%; today it is 3.5%, down 470%. 3.5% is well below the average US saving rate of 8.95% from 1959 to 2022. The lowest saving rate since the National Bureau of Economics Research began collecting this data was a seasonally adjusted 2.2% in July 2005.