U.S. Households Borrow More Than Ever, Just Not on Credit Cards

Americans increased their borrowing to a record of $14.6 trillion in March, driven by home and auto loans. But the growth masked what Federal Reserve Bank of New York researchers called a “confounding” decline in credit-card balances during a quarter when retail sales soared and travel resumed.

The New York Fed report, the first snapshot of household balance sheets as the economy started to rebound from the pandemic, shows that mortgage, auto and student loan balances have continued to increase. So did the quality of new borrowers, many of whom were taking advantage of low-interest rates to refinance their home loans.

Credit-card balances shrunk by $49 billion in the first quarter, the second-largest quarterly decline since the data started being compiled in 1999 — the largest was in the second quarter of 2020, when business activity was frozen by lockdowns.

An influx of pandemic relief cash from the government and payment moratoriums on student loans and other bills has enabled people to pay down their credit-card balances for months now. Still, the magnitude of the decline in the first quarter is “remarkable” in light of the strong economic recovery, Fed researchers wrote.

“Surging retail sales volumes suggest that a combination of stimulus checks, increased consumer confidence, and pent-up demand are both supporting consumption and also helping borrowers reduce revolving debt balances,” said Andrew Haughwout, senior vice president at the New York Fed.

Credit-card balances are now $157 billion lower than they were at the end of 2019, before the Covid-19 health crisis hit.

Americans have a record $3.07 trillion available on credit cards — adding to the resiliency of household budgets to fuel emergency spending if needed.

While the credit-card reduction is happening across the board, older borrowers and those living in higher-income areas saw the steepest declines, according to the report.

However, older Americans, age 60 and more, took out a record number of new mortgages last quarter, according to the report, perhaps reflecting early retirements as they migrate to new areas or seniors buoyed by stock market gains enabling many to purchase second homes.

Auto loans rose to a record $1.38 trillion last quarter, and are increasingly being originated to Americans with high credit scores.

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