Struggling US households may soon max out their credit cards as banks get skittish

• Consumer spending has been surging and is on track to drive third-quarter GDP growth of 3.5%, according to ING Economics.
• But the spending habits of consumers do not appear to be sustainable, and a correction is due.
• "The problem is savings are finite and the banks are tightening lending standards significantly. "

The US consumer has been hanging strong so far this year, with spending still rising and on track to drive third-quarter GDP growth of up to 3.5%, according to a Thursday note from ING Economics.

But spending habits are unsustainable, and a decline in consumer spending is likely coming in early 2024, according to the note. That's because credit card debts are piling up and excess savings from the pandemic are being depleted.

"The problem is savings are finite and the banks are tightening lending standards significantly. Credit card borrowing costs are the highest since records began in 1972 so there is going to be a lot of pain out there," ING's chief international economist James Knightley said.

And while a solid jobs market provides a strong base for consumers to keep spending, wage growth has been tracking below inflation, and savings trends have been deteriorating.

"We have seen savings flows reverse and now we are running them down each and every month, which is not sustainable over the long term," Knightley said.

He estimated that at the current rate of spending, excess savings from the pandemic will be fully exhausted by the second quarter of 2024, and even sooner for low- and middle-income consumers.

Knightley warned that a trifecta of developments could weigh down consumers' ability to spend, including the full exhaustion of excess savings, the upcoming October restart of student loan payments, and a maxed out credit card that limits further borrowing.

"With banks far more reluctant to provide unsecured consumer credit, based on the Federal Reserve's Senior Loan Officer Opinion survey, the clear threat is that many struggling households may soon find their credit cards are being maxed out and they can't obtain more credit," he said.

Total credit card debt held by US consumers hit a record high earlier this year of more than $1 trillion.

But there is one area consumers might be able to take advantage of to further sustain their spending habits, and that's their home equity, which currently stands at a record high of $28.7 trillion.