Did the American consumer finally collapse? Credit card debt fell sharply in June

Two months ago, when revolving credit (i.e., credit card debt) and credit card interest were both at record highs, the well-known finance blog Zero HedgingExpect this trend to be unsustainable, and the debt-laden American consumer will hit the wall sooner or later.

"As non-revolving credit shrinks, the final pressure will come from the reversal of [record] credit card debt. With credit card interest rates also at a record 22.16 per cent, the wait won't be too long."

The blog recently wrote that the latest data proved the accuracy of its predictions, and indeed it only took a month.

After several months of big increases, including a near-record $14.80 billion in April, the latest reported June credit card debt actually fell by $600 million,This is the first negative growth since April 2021.Zero Hedge commented,

"At that time, American consumers were still affected by the post-epidemic and were saving aggressively, and that money has been spent long ago. This is because Americans are actively paying down debt, and they only do this when a recession is imminent!"

Industrial foreign exchangetraderIt also said that while non-revolving credit rose sharply by $18.50 billion in June, higher than last month's decline (this time revised to a slightly positive value), the jump will quickly reverse once the student loan deferral period ends on September 1. Moreover,"The big story is revolving credit".

Industrial Forex TraderExplain that the decrease in revolving credit is alarming because, in addition to the crisis,This usually means a recession at the end of the economic cycle, when US consumers (who consume 70% of US GDP) go into "hibernation" and start paying off their bloated credit card bills.As of today, the average interest on these bills is a staggering 22% (see chart below).

Adding these two types of consumer credit together, consumer credit totaled $17.85 billion in June, which, as noted above, is entirely due to the $18.50 billion increase in non-revolving (student and auto loan) credit.

Societe Generale Forex traders say that digging into the non-revolving credit data shows that it's not all rosy here, because in the second quarter, while auto loans rose by $17.60 billion (though hardly a big increase) (as expected when 60-month auto loan rates hit record highs), student loans actually fell by $9.10 billion, the first decline since the second quarter of 2022, when most student borrowers were still in deferred repayment periods.

And once student loan repayments are resumed after two months, be careful.At the same time, the average interest rate on credit cards rose to more than 22%, a record high.Industrial Forex TraderExpress,

"This month's decline in credit card debt is just the beginning."

On Tuesday at 3 a.m. Beijing time, the Federal Reserve will release its June consumer credit report.