US consumer borrowing experienced a substantial surge in November, marking the largest increase in a year, as credit-card balances skyrocketed during the holiday shopping season. According to the Federal Reserve data released on Monday, total credit rose by $23.8 billion, surpassing economists' estimates by a significant margin. This surge follows a revised $5.8 billion increase in October.
The rise in revolving credit outstanding, which includes credit cards, accounted for a major part of this increase. November saw a jump of $19.1 billion in credit card balances, the largest increase since March 2022. Non-revolving credit, such as loans for vehicle purchases and school tuition, also rose by $4.6 billion. It is important to note that these figures are not adjusted for inflation.
While the surge in consumer borrowing can be an indicator of increased economic activity and confidence, it does come with potential risks. Interest rates for personal loans and new cars increased in November, which could lead to higher borrowing costs for consumers. With larger credit card balances and rising interest rates, consumers may be compelled to curtail their discretionary spending in the coming months.
However, thus far, consumer confidence has remained relatively strong due to steady job growth, wage increases, and savings. These factors have given Americans the confidence to continue spending and take on more credit card debt.
Separate data from the New York Fed reveals that revolving debt outstanding increased by over $150 billion in the third quarter compared to the previous year. This substantial annual increase is the highest on record since 1999.
Despite the overall positive trend, some signs of stress are emerging. The New York Fed data showed a rise in the rate of newly delinquent credit card debt in the third quarter. This increase was most prominent among millennials, particularly those who also have auto loans and student debt.
As the economy continues to recover from the impact of the pandemic, monitoring consumer borrowing patterns and debt levels will be essential. While the surge in credit card balances indicates robust consumer spending during the holiday season, potential risks may arise if borrowing costs continue to rise and delinquency rates increase further.