Credit report hits new high, hitting retailers and shoppers’ savings

The April consumer credit report released Tuesday afternoon rose $38 billion on a seasonally adjusted basis to $4.57 trillion, a new record – and beating the forecast increase of $35 billion. The feat marks the third consecutive month of earnings over $30 billion.

Revolving credit, which is mostly credit card debt and tends to account for almost a quarter of all consumer debt, grew at a healthy pace of 19.6% in April, more than a bit faster than the 16.8% increase recorded in the first three months of 2022 That said, although April’s growth rate was slower than the 29% jump recorded in April, it still indicates a rapid increase in consumer borrowing and much faster than that of the first two months of the year.

This increase in revolving credit growth in March and April compared to January and February is part of the inflationary pressures we have seen following the Russian-Ukrainian war, rising oil prices and oil prices. resulting gas, and new supply chain issues. Comparing that to April’s drop in the personal savings rate as well as personal spending data, the new numbers likely show consumers taking on credit card debt to fund purchases. We should expect average credit card debt to increase and a quick look at (one of the scariest websites if you ask us) shows the average credit card debt per cardholder is $6,903 versus $5,585, according to data published by Credit Karma. As we have discussed in recent days, the upward trajectory of borrowing costs associated with these borrowings means that monthly debt service payments will be higher in the coming months compared to the start of this year. Couple that with higher borrowing and we have a headwind for consumer spending, especially since more of those dollars spent go to energy costs (gas, electricity) as well as food.

While it may be an afterthought, we certainly feel a lot better about Walmart (WMT) stock’s exit earlier today. In addition to likely competitive pressures as more retailers follow Target’s (TGT) move to aggressively cut excess inventory, weaker-than-expected consumer spending could compound the problem.

As consumers face less disposable income, we are increasingly seeing Costco Wholesale (COST) and Amazon (AMZN) benefit.

PAA is long COST, AMZN.

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