Tuesday, July 08, 2008

Consumer Debt Surges $8B In May

The financial condition of the middle and lower classes continues to deteriorate.
Consumers boosted their borrowing in May, mostly reflecting heavy credit card use to finance their purchases.

The Federal Reserve reported Tuesday that consumer credit increased at an annual rate of 3.6% in May, roughly the same pace as logged in the prior month.

The pickup pushed total consumer debt up by $7.8 billion to $2.57 trillion. That was a bit more brisk than the $7 billion over-the-month increase economists were expecting.

The increase was led by much stronger demand for a category called revolving credit, which is primarily credit cards. Use of revolving credit rose at a 7.1% pace in May, a month where a flow of tax rebates helped to energize consumer spending. In April, consumers cut back on such credit at a 0.5% pace.
What this reports tell us is that the middle and lower classes are depending on high interest credit cards to meet the ever rising cost of living. Most consumers are at or close to maxing out on their credit and do not have the ability to pay more than the minimum payment. The credit cards companies will see ever greater profits while the middle and lower classes will be choked by high interest payments on this debt. This cycle can only mean that a recovery from this economic mess is nowhere in sight.