Total U.S. consumer credit rose by $25.5 billion in July, the largest increase since November 2022, highlighting a surge in non-revolving credit and credit card bills, the latest data showed. Meanwhile, the labor market cooled further. The data reinforced expectations that the Federal Reserve will cut interest rates sharply at its September meeting, and the U.S. economy continues to face great uncertainty.

　　Consumer credit unexpected growth

　　According to Reuters, local time on September 9, the Federal Reserve released data showing that in July the total outstanding credit of U.S. consumers increased by $ 25.5 billion, an increase that exceeded all predictions of the survey of economists. Outstanding revolving debt, including credit cards, increased by $10.6 billion, the highest level in five months. Non-revolving credit, such as loans for car purchases and tuition loans, surged by $14.8 billion.

　　The increase in borrowing helped propel U.S. retail sales in July to the largest increase since early 2023. This included an increase in motor vehicle purchases. However, carrying bigger credit card bills and high-interest loans will pose a risk to spending if consumers become more cautious. While Fed policymakers are expected to take the first step toward lowering the benchmark interest rate next week, it will take some time for the Fed's actions to translate into lower consumer financing costs, the report said.

　　With the end of the U.S. government's epidemic subsidies, many Americans have exhausted the “excess savings” accumulated during the epidemic, credit card defaults began to rise. The New York Federal Reserve recently released a report showing that although the second quarter of this year, the overall consumer debt delinquency ratio remained at 3.2%, but the proportion of new delinquent auto and credit card loans continue to climb. The percentage of auto loans that were at least 30 days delinquent was the highest since 2010. The percentage of newly delinquent credit card debt rose to 9.05 percent, the highest level in 12 years. This comes on the heels of the first quarter 2024 30-day past due credit card default rate and 90-day past due credit card default rate of 8.93 percent and 6.86 percent, respectively, which were the highest since the second quarter of 2011 and the third quarter of 2011.

　　Some analysts pointed out that, at present, the U.S. inflation rate in 2022 hit a 40-year high since has fallen sharply, but compared with the epidemic before the cumulative rate of increase is still close to 20%, the people's actual feeling is that the price level is still very high. Some data show that, compared with President Joe Biden's presidency, U.S. households spend $17,000 more per year on the same goods and services.

　　The Federal Reserve released the July National Economic Situation Survey report shows that consumers are more price-sensitive, low-income people by only buying essentials, reduce consumption and look for price substitution to reduce spending. McKinsey's survey report also supports this judgment, out of concern for high prices under the personal financial situation, in addition to food and clothing to continue to maintain the momentum of consumption, U.S. consumers cut back on other areas of expenditure, and began a “consumer downgrade”: reduce the number of purchases, looking for a lower price, or delay the purchase.

　　Job market further weakened

　　Consumers under pressure at the same time, the U.S. labor market is cooling. The U.S. Department of Labor's recently released Job Openings and Labor Turnover Survey (JOLTS) showed that job openings, a measure of labor demand, fell to 7.673 million in July, the lowest level since January 2021.

　　Nonfarm payrolls, a measure of new U.S. jobs, increased by 142,000 in August, which was lower than expected. The U.S. added 114,000 nonfarm payrolls in July, well below market expectations of 175,000 people. From April to August this year, the U.S. averaged only 135,000 new nonfarm payrolls per month, below the 2019 average of 166,000.

　　Meanwhile, average job growth over the past few months slowed to its lowest level since early 2021. As of July 2024, the U.S. unemployment rate had risen for four consecutive months to its highest level since late 2021.

　　Also cooling in tandem was wage growth. U.S. payrolls rose less than half as much as forecast in the first quarter of 2024. More than one-third of people are worried about breaking even in the next seven to 12 months, according to survey results released by the Federal Reserve Bank of Philadelphia's Institute for Consumer Finance.

　　Data from the U.S. Department of Labor showed that average hourly earnings in the U.S. rose 0.4% in August from a year earlier and 3.8% from a year earlier. While the rate of payroll growth improved slightly, it remained in a more moderate growth range. The labor force participation rate remained unchanged at 62.7% for the month. In particular, the participation rate for workers in the 25- to 54-year-old age group was lower for the first time since March.

　    As inflation continues its downward spiral, employment data is considered the most important indicator for the Federal Reserve to focus on. Deutsche Bank senior U.S. economist Brett Ryan said that from the available data, the labor market is no longer a source of risk to the upside of inflation. The U.S. labor market if there are further signs of cooling will drag down consumer spending and may signal a recession.

　　Economic outlook faces uncertainty

　　The weaker-than-expected employment data heightened investor concerns about a slowdown in the U.S. economy and expectations of aggressive interest rate cuts. Currently, investors' expectations of a sharp rate cut by the Federal Reserve at the September meeting have increased, with the likelihood of a 50 basis point cut rising to about 55%.

　　The U.S. economy is cooling down, with manufacturing still in recession, and there are few signs that the situation will change anytime soon, but it will need to be seen to what extent a rate cut will help bring about more economic activity, said Bukhwal, chief investment officer at Blakely Financial Group.

　　Schlossberg, macro strategist at asset management firm BK Asset Management, said that from a macro level, the U.S. economy's soft landing or not depends on the Federal Reserve's subsequent actions, and that while it cannot be said that a recession is imminent now, the risk of a policy blunder cannot be ignored. At present, the rate cut of 25 basis points is basically fully digested, so the regular interest rate cuts landed on the positive may become a catalyst for the funds in the bag, if the choice of 50 basis points, that means the deterioration of the economic situation, the sell-off will be inevitable. Therefore, whatever the Fed decides, it is still the certainty of the economic outlook that will drive the market more.

　　Despite a series of weak U.S. employment reports that have unnerved investors and pressured stocks, U.S. Treasury Secretary Yellen reassured the public that the U.S. economy remains strong.

　　Yellen said, compared with the United States in the new crown pandemic after the re-opening of the “hiring boom”, job growth has slowed, but the economy is “into the depths of the recovery” “basically in a state of full employment “.