Consumer spending and debt are up as US economy begins rebound

Retail and food service purchases hit an estimated $700.3 billion in January 2024, a 0.6% rise from the year before, Census Bureau data shows.

Growing purchases, paired with other debt, has helped increase household debt. In Q4 2023, total U.S. household debt increased to $17.5 trillion in Q4 2023, a report released by the Federal Reserve of New York said.

This spending may add to consumer debt but can help the economy overall. Consumer spending accounts for a large portion of the country's Gross Domestic Product (GDP). When consumers are spending more, this typically means the economy is growing.

"The economy is still flying high enough and economists can take down those recession forecasts this year," Christopher Rupkey, the chief economist at FWDBONDS in New York, said. "For Fed officials, the economy is not too hot and not too cold, but it is just right perhaps for a few interest rate cuts in 2024."

While debt rates rose for some Americans, many remain optimistic about the economy and their financial outlook. WalletHub’s Economic Index, which measures consumer satisfaction, rose by about 4% between January 2023 and January 2024. This means some consumers are feeling more confident about their overall financial situation.

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Consumer credit card debt is up

Due to higher household spending, U.S. credit card debt continues to rise. About 61% of American households have credit card debt, said a Clever Real Estate study. The average credit card debt balance sits at $5,875.

This debt often builds up as consumers cover basics like living expenses, food and utilities. 48% of users Clever surveyed use their cards for these basic necessities, and 23% wrack up higher balances each month.

To combat growing debt, the Federal Reserve found that 38.4% of consumers who received a 10% income increase would spend it on paying down debt. This is the highest percentage since August 2016.

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Mortgages still account for highest household debt

The largest debt many Americans carry is their mortgage. At the end of September 2023, mortgage balances reached over $12 trillion, data from the Federal Reserve of New York showed.

The increase in mortgage balances is largely due to mortgage rates rising most of 2023 and higher listing prices.

Home sales also increased at the end of the year, the NAR reported. The 0.8% growth from October 2023 to November 2023 also added to the overall mortgage balance across the country.

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