Written By: Rodney Johnson of The Rodney Johnson Report
May 23, 2022
American Credit Card Usage Has Gone Up - What Does This Mean?
As the U.S. economy entered a recession in 2008, consumers put their credit cards in the deep freeze. Through 2009, some credit card companies offered to pay off small balances if consumers would agree to close their accounts. Effectively, credit companies were paying clients to go away. Back then, the problem was repayment. Americans were behind on their mortgages and credit card bills, and were losing their jobs. American Express and other credit card issuers wanted to cut ties with the people most likely to default and to recenter their businesses on lower-risk borrowers.
The chart below shows the amount of credit card debt outstanding in the U.S. from 2008 through March 2022. Revolving debt peaked at $1.019 trillion in June 2008, and then rolled over and steadily declined for three years. Our credit card borrowing hit bottom at $832 billion in May 2011, and then remained low for another three years before starting a long march higher in 2014.
Source: Federal Reserve, Release G-19, Consumer Credit
We didn’t pass our previous borrowing high from 2008 until almost a decade later, in January 2018. We then reached our pre-pandemic peak of $1.1 trillion again in February 2020. We shut our wallets early in the pandemic and used some of the stimulus funds to pay off debt, which had reduced revolving credit to $972 billion by early last year, but then we started racking up the credit card bills again. We’ve now added back almost all of the credit card debt we paid off during the pandemic. This doesn’t bode well for GDP in the months ahead.
Real GDP growth went negative in the first quarter, but the numbers were weird. GDP expanded by 7%, which is great, but with inflation at 8.4%, real growth fell by 1.4%. Many people think that this has been just a fluke. They expect inflation to come down and GDP to remain strong. But consumer spending was one of the strongest components of GDP, and it was driven in part by spending on credit. If the consumer credit growth rate returns to its previous pace, or moderates a bit, then consumer spending growth will slow down and take GDP growth with it. If inflation remains elevated while GDP growth eases, then we could be looking at another quarter or two of contracting real -GDP growth, which would put us into a recession.
The good news is that, if this happens, the Fed likely will pause in its monetary tightening policy, which will give equity and bond markets a chance to rebound. It’s odd to think of a recession as a way to boost stock prices, but that’s part of the craziness of investing in a world managed by the central bankers.
For more information on interest rates and how they are affecting U.S. economy in 2022, watch this video from Rodney Johnson.
For more information regarding taxes and the economy, check out these other CRA articles:
The Stock Market and the Economy Are Not the Same: A Guide to Understanding the Difference — California Retirement Advisors (cradvisors.com)
Inflation Is Creeping into Personal Finances - Here's How — California Retirement Advisors (cradvisors.com)
The Invasion Of Ukraine Has Created Market Volatility - Here's How To Stay Focused On Your Financial Goals! — California Retirement Advisors (cradvisors.com)
Tax Credit and Tax Deduction - What's The Difference? — California Retirement Advisors (cradvisors.com)
Looking to Reduce Your Carbon Footprint? This E-bike Tax Credit Will Reward You! — California Retirement Advisors (cradvisors.com)
American Credit Card Usage Has Gone Up - What Does This Mean? — California Retirement Advisors (cradvisors.com)
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. The information presented is not to be considered advice you can or should act upon for investment, tax or estate planning purposes without consulting with a professional to discuss your own set of unique circumstances. This article is designed to provide you with information regarding investing and planning for or during retirement. You must seek professional advice separately before acting on any items discussed in this article. The views expressed are those of Rodney Johnson and not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. Rodney Johnson is not affiliated with Mutual Advisors, LLC or California Retirement Advisors.