RALEIGH – American consumers added $47.5 billion in consumer credit card debt in the second quarter of 2021, and that’s an all-time record, according to new research from Wallet Hub.

North Carolinians added nearly $1.5 billion in credit card debt in the second quarter, the study found, and the state now ranks 9th in total outstanding consumer credit card debt, with some $30.4 billion outstanding.

This report comes a year following findings when more than $117 billion in debt was paid off by American consumers in the first and second quarters of 2020, with a debt paydown of about $58.6 billion in the second quarter of 2020.

That’s a difference of $106.1 billion in credit card debt in one year.  But is that a good thing, a bad thing, or neither?

“As with much today, there’s a lot happening at the same time,” said Christian T. Lundblad, the Richard Levin Distinguished Professor of Finance, and chair, finance area, and associate dean, Ph.D. program at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and the Director of Research at the Frank Hawkins Kenan Institute of Private Enterprise.

“First all of our statistical prints right now are contaminated by what we call “basic effects’,” said Lundblad.  “That means that percentage changes are distorted by the fact that this time last year reflected significant lows in many measures of economic activity.”

“What might be more, or at least equally, interesting would be to look at a two-year change,” said Lundblad.

Can technology predict your debt? How AI is changing the repayment landscape

American consumers added $34.5 billion in new credit card debt in the second quarter of 2019, according to WalletHub’s research.

“It’s interesting to explore the extent to which levels of indebtedness are moving around,” said Lundblad.  “Significant payments associated with various forms of government support definitively helped some families get through this period and perhaps even avoid an excess reliance on credit.”

Americans were also willing to spend in 2021, especially in the spring and summer months, noted Lundblad, describing it as “a pretty broad-based explosion in discretionary consumption.”

The Consumer Consternation Index. Image provided by Kenan Institute. Data Source: SafeGraph; Morning Consult; Opportunity Insights.

Lundblad noted that the index that the Kenan Institute uses to track consumer consternation, or the degree to which American and North Carolinian consumers are unable or disinclined to engage in non-essential economic activity, is showing that levels fell back to levels that were observed prior to the onset of the global coronavirus pandemic in March 2020.

“A low number is good,” said Lundblad.  “This is simply a reflection of pent up demand, where some of that was financed by accumulated savings and some of that was invariably financed by credit.”

In North Carolina, the average household debt due to consumer credit cards is $8,158, an increase of $375 on average from the same period last year.

Americans and North Carolinians are spending more, on average, and some of those essential and discretionary purchases are financed, adding to their household debt.

“That does not strike me as necessarily a bad thing,” said Lundblad.  “I would also acknowledge that once this all settles out, we certainly do not want to return to a climate of excess reliance on unsecured credit, such as credit cards.”

Three-quarters of small business owners took on debt to offset COVID-19 losses

Lundblad added that what could be concerning, for the economy, is that the consumer consternation index is now increasing, following the emergence of the Delta variant and its spread in the United States.

“While the extent to which the typical American household is in good financial order is obviously a long-standing concern, I’m neither surprised nor particular concerned to see a big jump in consumption, some of which invariably financed by credit.”

Economist and North Carolina Central University and UNC-Chapel Hill Kenan-Flagler professor Henry McKoy told WRAL TechWire that there’s another important economic indicator to watch, both in the Triangle, in the state, and nationally.

“The most interesting thing to watch is going to be the impact of the jobless benefits ending on the large open job market,” McKoy said.  “The question is whether people will flock back to the workforce now that supplemental unemployment benefits have ended.”

McKoy added that there’s an additional question: what will happen to wages?

“Employers have had to increase the wages and benefits to attract workers, including bonuses and higher hourly pay,” said McKoy, but how long will those changes remain?

“It has certainly been an employee’s market, so I am interested to see if and when it will shift back to the advantage of the employer,” said McKoy.  “Or conversely, will there be a new ’employee-employer contract’ forged in this new world order?”