Fed: Card balances fall for the first time in months


Credit card balances fell slightly in August after rising for five straight months, the Federal Reserve said Tuesday.

Revolving debt decreased at a 0.3 percent annual pace in July, down from a 7.4 percent pace in July, according to the Federal Reserve's preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.

While August's $200 million total revolving debt balance decrease -- $880.5 billion in July to $880.3 billion in August -- is a change in recent direction, it's not a game changer, according to Richard Moody, senior economist with Regions Financial Corporation.

"The total balance is still above where it's been over the last couple of years, with the exception of last month," he said. "The bottom line is you are still seeing a little bit of growth there so it's really hard to read into the numbers that much. $880.3 billion is nearly unchanged from $880.5 billion in the grand scheme of things."

Total consumer debt rose 5 percent in August to approximately $3.25 trillion. Total consumer debt includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected out-of-the-ordinary fluctuations that may occur, such as back-to-school or holiday seasons.

The average interest rate on credit card accounts was 11.82 percent in August, according to the Fed report, only slight down from May's 11.83 percent average, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were actually charged interest because they carried a balance was 13.18 percent, up from 12.74 percent in May. 

Despite a drop in card balances, consumer spending as a whole is on the rise again, after an abrupt decline in July. Total spending is up approximately $57.5 billion (0.5 percent) after a revised $500 million (<0.1 percent) decrease in July, according to the Commerce Department. August's consumer spending figures show the fastest growth pace in six months.

On another positive note, the credit card account delinquency rate released by the American Bankers Association Wednesday changed little, dropping from 2.44 percent in the first quarter to 2.43 in the second. This rate based on account payments more than 30 days overdue indicates that consumers are still regaining their ability to responsibly manage finances post-recession.

Wage growth remains stagnant
Lower card balances come on a foundation of a stronger job market but weakness in income growth, which could hinder a consumer's willingness to take on new debts.  

After mild August job market growth of only 180,000 new jobs (revised up from 142,000) compared to the average monthly gain of 212,000 over the past year, September's employment report is much rosier, but shows areas of the economy that have yet to see healthy growth.

Employers created 248,000 jobs in September, raising the average monthly gain to 213,000 jobs over the last year, the Labor Department said. Additionally, the unemployment rate dropped to 5.9 percent from 6.1 percent in September, which is the first time the rate has dropped below 6 percent since before the recession in 2008.

However, despite positive job market news, wage growth is nonexistent. Average hourly employee earnings changed little in September, down a penny to $24.53.

The continued lack of wage growth continues to give the Fed reason to delay its anticipated interest rate hike -- which will raise the costs of carrying credit card balances -- but stagnant wages also continue to subdue the rate at which the economy recovers as a whole.

"There are a lot of potential explanations for the delay and I think the biggest one is that there is still just a lot of slack in the labor market even though we've been creating over 200,000 jobs a month on average," Moody said. "There is just such an abundance of workers that the market has to get tighter before pushing up the wages is a possibility."

A 5.9 percent unemployment rate is good compared to recent year's reports, but it's not back down to what was considered a full employment rate of 4-4.5 percent in early 2007, before the recession. Part-time employment numbers also have to decrease before they are back into what's considered a healthy economic range.

"As of September there are *7.1 million people employed part-time and in a healthy labor market that number would be below 4 million," Moody said.

Overall, the job market has to tighten more before wages will be pushed up and consumers can begin to really feel the growth that's been occurring, but that will take time, according to Moody.

"We are seeing growth but it doesn't feel very good," he added. "And people just think we are stuck in a slow growth world but in reality, the growth is not different from other up and down cycles, the difference is the depth of the hole. Even if we are improving at a normal rate we just have further to go because the situation has been worse than others before."

Last month's story: Fed: Card balances rise for a 5th straight month

*Correction: As originally published, the number of people employed part-time in September contained a typographical error. See's correction policy.

Published: October 7, 2014

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Updated: 10-23-2016

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