American consumers are now more indebted than ever. A recently released Federal Reserve Consumer Credit report shows that U.S. consumer credit outstanding has reached historic levels as outstanding consumer credit is now at $4.7 trillion. In August, consumer credit increased at a seasonally adjusted annual rate of 8.3 percent. The previous rise in July had been 6.%.
These current levels of consumer debt show that the Federal Reserve raising rates has not slowed down consumer borrowing. While consumer credit declined in the years immediately after the 2007 – 2009 financial crisis, since the second quarter of 2011 until the second quarter of this year, consumer credit outstanding has increased by 90%.
Despite these increases in debt obligations, consumers are still experiencing the benefits of low unemployment, rising wages and the lingering positive financial effects of the Covid slowdowns in 2020-21, all of which could cause a false sense of financial security.
While this author does not believe that the U.S. economy is heading for a recession, if companies continue the trend of trimming their employment ranks, and unemployment rates rise above 5% within the next six to nine months, we could end up in a slowdown that could have a massive effect on consumer credit markets.