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Credit card balances extend their slide

Card debt falls a 4th month as overall consumer debt rises, Fed report says

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Credit card balances fell again in September, extending the string of declines to a fourth straight month, according to the Federal Reserve's monthly G.19 report on consumer credit.

Revolving debt -- which mainly consists of credit card balances -- fell at an annual pace of 2.9 percent in September, on a seasonally adjusted basis. That compares to a 1.2 percent fall in August and 2.6 percent in July.  Balances had not fallen for more than two months in a row since early 2011, which marked the end of a two-year nosedive.

"I think it's twofold," said Mesirow Financial Economist David Nice. "It's individuals having an unwillingness to take on revolving debt, and the lenders being reluctant" to extend credit.

It's true that consumers don't get all the credit for keeping a lid on card balances. The latest survey of senior loan officers by the Federal Reserve found that bankers continue to be cool toward applicants for new cards.

Taking a broader look at consumers' short-term debt, obligations rose overall in September at a 5.4 percent annual pace to a total of $3.1 trillion, of which $847 billion was revolving debt. The Fed's measure of consumer debt includes installment loans such as auto loans, plus student loans and revolving debt. Debt secured by real estate is excluded. Revolving debt's share of all short-term consumer debt, at about 28 percent, is at its lowest level since 1990.

The lower balances on cards came during a fraught period that left consumer confidence shaken.  In September, the federal government was rolling toward its highly anticipated shutdown on Oct. 1, and a possible crisis over the nation's debt ceiling after that.

Now we know how that story ends, and it wasn't the apocalyptic drama that many feared. Federal workers returned to their desks after a two-week furlough and a last-minute deal averted a default by the U.S. Treasury. However, uncertainty about the government's ability to pay its bills was widespread -- and it could still throw a chill into economic activity during the fall and winter, economists say, as another deadline to raise the debt ceiling looms in January.

The outcome of the shutdown "was largely expected, but does not remove the specter of political uncertainty," TD Economics Chief Economist Craig Alexander said in an analysis. "Politicians are likely to again be mired in similar negotiations in just a few weeks."

Retail sales seemed to be crimped in September, falling slightly from August, although they still managed to come in 3 percent higher than September of 2012, according to the Census Bureau.

A fresh look at economic growth
The Fed's look at consumers' appetite for debt was announced the same day as a good news/bad news picture of economic growth in the third quarter. The government's initial estimate said the economy grew at a 2.8 percent annual rate in the July-September period, beating  analysts' expectations of 2 percent GDP growth. But consumer demand was not a big driver, as the improvement came from a buildup in inventories. "Spending on household services was basically flat, which held down growth in overall consumer spending," Regions Bank Chief Economist Richard Moody said in a research note. Unemployment figures for October will follow on Friday, and many analysts are expecting an uptick in September's 7.2 percent jobless rate as a result of the federal government shutdown.

Credit card balances, now at about 82 percent of their $1 trillion-plus peak five years ago, may have found a new equilibrium, after being trimmed by the recession and nearly 5 million consumer bankruptcies since the end of 2009.

Sluggish card use is not spread evenly across the sector, however. Store-branded credit cards are outpacing general purpose cards, according to a recent analysis by the credit bureau Equifax.

"Nationwide, new account opening for retail credit cards has rebounded from the recession much more so than bank cards," according to an Equifax news release. Comparing the third quarter to the year-earlier period, Equifax said that debt on retail cards grew about 7 percent, while general purpose cards added less than half of 1 percent to their balances.

"Consumers may be opting for retail credit cards because of the promotions, discounts and other perks they get at the register," Equifax Personal Solutions President Trey Loughran said in the news release. Store cards are the primary vehicle for breaks such as interest-free financing deals. "Other consumers are likely compartmentalizing their purchases -- opening retail accounts to pay for larger purchases over time and using their bank cards for everyday purchases like gas and groceries to be paid in full each month."

Published: November 7, 2013


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