Total consumer credit rose $40.8 billion in December, after a $5.4 billion decline in the prior month, the Federal Reserve said last Friday. In percentage terms, it is the biggest gain since June 2022.
Will consumers lose their mojo? They shopped until they dropped during the holidays, which is why retail sales were up 3.9 percent in December as well. To do this consumers were spending more than they were earning. The question now is when will consumers run out of savings, and stop shopping? That will in fact determine economic growth in the New Year.
Revolving credit, typically credit-card debt, made up most of the increase, rising at a 20.2% annual rate. That follows a 12.1% drop in the prior month. Nonrevolving credit, mainly auto and student loans, rose at a 5.8% rate after a 2.7% rise in the prior month.
That’s the fine line the Fed’s Chair Powell is attempting to walk at their semi-annual congressional update this week. He didn’t say outright that the tariffs that President Trump has announced will cause inflation to spike so they can’t drop interest rates any lower, in answering questions.
"We are in a pretty good place," Powell told the Senate committee - citing tariffs, immigration, fiscal and regulatory policy as the key variables the Fed will "try to make sense of".
Therefore we won’t actually know the future until we see that happens when the new tariffs on imports kick in and those countries retaliate with their own tariffs on U.S. exports.
So January will be another story as consumers must begin to spend less to replenish their savings. A sign of their hurt is that the delinquency rate has risen, with some 3.5% of card balances past due by 30 or more days and 1.8% of accounts delinquent. Both figures are more than double the post-pandemic lows recorded in 2021, said Bloomberg.
Another hint on future consumer behavior is how small businesses are feeling. The NFIB Small Business Optimism Index fell by 2.3 points in January to 102.8. This is the third consecutive month above the 51-year average of 98. The Uncertainty Index rose 14 points to 100 – the third highest recorded reading – after two months of decline.
“Overall, small business owners remain optimistic regarding future business conditions, but uncertainty is on the rise,” said NFIB Chief Economist Bill Dunkelberg. “Hiring challenges continue to frustrate Main Street owners as they struggle to find qualified workers to fill their many open positions. Meanwhile, fewer plan capital investments as they prepare for the months ahead.”
Speaking of hiring challenges, Goldman Sachs put out a graph that shows just how important ‘unauthorized’ workers are to the U.S. economy. They make up approximately half of the jobs native-born Americans won’t take.
“The key risk is probably not a scenario in which annual deportations reach into the millions, but one where an immigration crackdown creates a climate where employers are afraid to employ unauthorized immigrants or unauthorized immigrants are afraid to go to work, potentially leading many to stay out of the workforce or even to leave the U.S. on their own,” said Goldman Sachs of their survey.
And we have just learned that inflation may be on the rise again, with the retail Consumer Price Index above 3 percent. The financial markets are reacting because of the news. It isn’t a good time to be imposing tariffs, in other words.
Harlan Green © 2025
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