Have you been spending more this year than last? Americans whipped out their credit cards in May and borrowed the most amount of money in five years, reflecting growing optimism about the economic recovery and a greater willingness of consumers to spend. Total consumer credit rose by 10%, or $35 billion, in May, the Federal Reserve. That’s the biggest increase since March of 2016.
Consumer credit had been growing at a slow but steady pace since last fall, but a waning coronavirus pandemic has allowed U.S. states to remove most restrictions. The economy has responded by expanding more rapidly, with most companies trying to hire more workers.
Economists had been expecting an increase of $18 billion, according to a Wall Street Journal forecast. Households tend to use more credit when the economy is good and people feel like they have a lot of job security. At the same time, though, the cost of many goods and services has risen sharply this year because of a surge in pent up demand.
The price of used cars, for example, has leaped to record highs and many popular vacation resorts around the country are booked. Yet the use of credit is not much higher than it was a year ago. It only exceeded pre-crisis levels in March. What’s more, savings levels are still quite high, thanks in part to federal stimulus money paid to most Americans.
Last year the use of credit fell for the first time since the last recession in 2009. Revolving credit, like credit cards, increased by 11.4%. Non-revolving credit, typically auto and student loans, also rose 9.5%. This category of credit is much less volatile. It only fell briefly at the start of the pandemic before returning to steady growth.
With this data at hand, we want to emphasize the importance of protecting your credit score, maximizing utilizing your points, spending responsibility, and taking advantage of potential zero percent interest. If you find yourself financially heading in the wrong direction, consult with a professional to attempt to alleviate the situation. We’d like to hear how your spending and borrowing habits have changed over the last few months, as people are assimilating into post-covid life. We will continue to track these numbers and how they will affect you and your situation. If you have any questions for us or want to share what you are seeing, send us an email at info@shermanwealth.com.