By Mike Maharrey, Money Metals Exchange

After paying down credit card debt in April, American consumers went back to running up the plastic in May. But borrowing for big-ticket items remained sluggish, indicating consumers are still struggling to make ends meet in this inflationary environment. 

Total consumer debt increased by another 11.3 billion in May, a 2.7 percent annual increase, according to the latest data released by the Federal Reserve. 

Americans now owe $5.06 trillion in consumer debt.

The Federal Reserve consumer debt figures include credit card debt, student loans, and auto loans, but do not factor in mortgage debt. When you include mortgages, U.S. households are buried under a record level of debt. As of the end of 2023, total household debt stood at $17.5 trillion.

Revolving credit, primarily credit card debt, was the main driver behind the May increase in consumer debt. This comes on the heels of a modest. 0.8 percent decline in revolving credit balances in April. This was likely due to people using income tax refunds to pay down credit card debt.

In May, consumers went back to charging it. Revolving debt increased by $7 billion, a 6.3 percent increase. This was in line with the percentage increase we saw in the first quarter.

Americans now owe $1.35 trillion in revolving debt.

It appears tax refunds gave consumers a bit of a reprieve, but they are still relying on credit cards to make ends meet, even as retail sales are declining, indicating Americans may be getting close to tapped out. 

Pundits and politicians have talked up the "robust economy" and the "resilient" American consumer for months, but this economic growth is courtesy of Visa and Mastercard. It was not exactly a sustainable economic trajectory. 

The double whammy of rising debt and interest rates exacerbates the debt problem. Average credit card interest rates eclipsed the previous record high of 17.87 percent months ago. The average annual percentage rate (APR) currently stands at 20.71 percent, with some companies charging rates as high as 28 percent.

This is one of the problems confronting the Federal Reserve. Even though inflation remains sticky, the central bank needs to ease interest rates before they bury debt-saddled American consumers.

The growth in non-revolving debt also reveals problems in America's borrow-and-spend paradise. 

Non-revolving debt, primarily reflecting outstanding auto loans, student loans, and loans for other big-ticket durable goods, increased by $4.4 billion, a tepid 1.4 percent increase. This continues a trend of sagging spending on big-ticket items that we've seen in recent months. Before the pandemic, revolving credit growth averaged 5 percent. 

The question is how long can Americans keep borrowing? 

The U.S. economy has been on an unsustainable trajectory since the end of the pandemic. As Americans went back to work, they faced shortages and supply chain issues. Then they got hit with inevitable price inflation resulting from trillions of dollars of money creation during the pandemic years. Today, prices continue to increase, even as higher interest rates are squeezing borrowers.

Simply put, the post-pandemic economic rally was never sustainable. 

As prices skyrocketed, Americans blew through their savings to make ends meet. Aggregate savings peaked at $2.1 trillion in August 2021. As of June 2023, the San Francisco Fed estimated that aggregate savings had dropped to $190 billion.

In other words, Americans ran through $1.9 trillion in savings in just two years. 

Then they turned to credit cards.

Of course, credit cards have this nasty little thing called a limit.

In March and April, credit card spending dropped precipitously, indicating that Americans may be close to tapped out. Tax refunds provided a little breathing room, but how long will they last?

And what happens when they hit that limit?

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