Credit card spending growth is slowing after reaching record highs

Consumers are under more pressure with savings running out: Putnam Investments' Jackie Cavanaugh

Consumers have remained remarkably resilient amid a series interest rate hikes aimed at cooling inflation. However, there are recent signs of a shift.

Shoppers are still buying more than last year, but spending growth is slowing as the economy settles down, according to Jack Kleinhenz, the National Retail Federation’s chief economist.

“There are ongoing economic challenges and questions, and the pace of consumer spending growth is becoming incrementally slower,” Kleinhenz said in the August issue of NRF’s Monthly Economic Review.

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In the last year, credit card debt spiked to a record high, while the personal savings rate fell. To that point, credit card balances for Americans hit a record $1 trillion this year, according to a report from the Federal Reserve Bank of New York.

But revolving debt, which mostly includes credit card balances, contracted in June, according to the Fed’s G.19 consumer credit report released earlier this month.

After a strong start to the year, credit and debit card spending started to slow in the spring, Bank of America’s most recent consumer checkpoint also found.

In July, total card spending increased just 0.1% year over year after three consecutive months of year-over-year declines, helped, in part, by Fourth of July sales, Amazon Prime Day and “Barbenheimer.”

Watch CNBC's full interview with National Retail Federation CEO Matt Shay

As interest rates continue to rise, households are increasingly under financial pressure and consumers are less likely to use credit cards to fund purchases, Kleinhenz said. Already, the average credit card rate is more than 20%, an all-time high. 

Spending habits are adjusting, NRF’s President and CEO Matt Shay said on “Squawk Box” Wednesday. Now, consumers are looking for value and focusing on essentials rather than discretionary purchases, Shay said. “Things have changed.

“Consumers are still in a very good space and they’re still spending,” he said, but “are they spending in the same ways they were 18 months, 12 months, 24 months ago? They’re not.”

‘A consumer spending slowdown is inevitable’

“A consumer spending slowdown is inevitable,” said Matt Schulz, LendingTree’s chief credit analyst. “There are simply too many headwinds facing the consumer.”

Student loan payments, which will resume this fall, will be another “huge test,” he added.

“I don’t think anyone quite knows what things are going to look like,” Schulz said.

“Card spending could go sky high because people with student loan payments need the cards to help them make ends meet or it could shrink,” Schulz said — if borrowers pull back even more on discretionary purchases like travel and dining out.

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