With rampant price inflation eating away at household budgets, U.S. consumers are saving less, using debt to keep their heads above water, and losing confidence in the economy.
The U.S. central bank noted that revolving credit, which consists of credit card debt, climbed by $17.77 billion. Non-revolving debt, such as auto and student loans, rose by $20.3 billion. Overall, consumer credit increased by 10.1 percent year over year.
In total, revolving credit advanced close to 20 percent in April to $1.103 trillion, topping the pre-pandemic record of $1.1 trillion. This has been driven by credit card balances rising to $841 billion in the first quarter of 2022.
About 33 million Americans think they will have more credit card debt by the end of the year, according to a new survey by WalletHub, a personal finance website.
"[W]e project an increase of at least $100 billion in credit card debt during the year,” said Jill Gonzalez, WalletHub analyst, in a statement. “This shouldn’t be much of a surprise, considering the increased prices consumers are being confronted with and their increased appetite to spend.”
The report noted that household balance sheets stayed strong in the first three months of 2022 as they were approximately $32.5 trillion above pre-crisis levels.
Consumer sentiment has also collapsed in this economic environment.
On the inflation front, consumers raised their one- and three-year expectations to 5.4 percent and 3.3 percent, respectively.
"Consumer sentiment declined by 14% from May, continuing a downward trend over the last year and reaching its lowest recorded value, comparable to the trough reached in the middle of the 1980 recession," explained Joanne Hsu, the Surveys of Consumers Director.
Households could come under even more financial pressure as the consumer price index (CPI) came in higher than what the market expected in May.
Soaring inflation is also impacting wage growth.
The essential components of the CPI report are showing zero indicators that prices are slowing down, says Christian Hoffman, the portfolio manager and managing director at Thornburg Investment Management.
"Key drivers of inflation such as food, energy, and housing show no signs of abating and disappointingly used vehicle prices, which had shown some potential softening in recent months, came in with engines revving," Hoffman wrote in a research note shortly after the May inflation report was published.
In addition to inflationary concerns, fears about the broader economy are also becoming paramount among consumers, according to multiple surveys in recent weeks.
"[W]ith the Expectations Index weakening further, consumers also do not foresee the economy picking up steam in the months ahead," said Lynn Franco, senior director of economic indicators at The Conference Board, in a statement.
“Meanwhile, purchasing intentions for cars, homes, major appliances, and more all cooled—likely a reflection of rising interest rates and consumers pivoting from big-ticket items to spending on services. Vacation plans have also softened due to rising prices. Indeed, inflation remains top of mind for consumers, with their inflation expectations in May virtually unchanged from April’s elevated levels. Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year.”