America’s addiction to credit cards is flaring up again. This is either really good news or really bad news.
Well, if you’re simply rooting for GDP growth, without regard for how it occurs, you can argue that this is a great sign. Roughly 70% of US economic activity is driven by consumption. And a rise in credit card use suggests that consumers are ramping up their buying. (Other data, such as the worsening US trade balance on higher imports of consumer goods (paywall), would seem consistent with that view.)
But if you care about the long-term sustainability of US economic growth and the financial health of American households, it’s not particularly heartening to see signs of backsliding into a widespread reliance on credit cards.
I’m going to go — surprise! — with “really bad news.”
Look, putting stuff on the Visa isn’t such a bad idea when your income is rising and you’re making some large, one-time purchases. But I’ll remind you that total US consumer spending actually shrank slightly in April (-0.1%), which means that Americans bought tons more stuff on credit at a time when they were spending less overall.
So what does that say about the real state of our earnings?
Probably nothing good.