Reversing course again, consumer card balances fall
Consumer credit card balances fell in September after briefly surging the
previous month, according to new data from the Federal Reserve.
The Federal Reserve's latest G.19 consumer credit report, released Wednesday,
showed a relatively steep 4.1 percent drop in revolving debt as consumers paid down their credit
card balances after padding them significantly in August. Revolving debt, which
in the report is made up almost exclusively of credit card debt, fell by $2.9 billion in September to $852 billion.
This is the sixth time this year that credit card balances have reversed
course from the previous month. Experts say the up-and-down trajectory that has
characterized this year's monthly data on revolving credit card balances
reflects, in part, an unstable economic recovery. Overall, consumer credit card
balances have risen this year, but the growth has been extremely slow and has
been anything but constant.
"There are good months and bad months [in this economy]," explains Paul
Edelstein, director of financial economics at IHS Global Insight. "Our
consumer economists like to call [it] fits and starts," he says.
The economy is moving in the right direction, however. "Right now, we're in a start,"
says Edelstein, referring to the recent spate of positive economic news. But "that
could turn into a fit," he says if the economy unexpectedly stumbles and
consumers face another round of bad news. "We're expecting a fairly good
holiday season, but after that it could turn negative again."
Either way, Edelstein cautions against reading too much into the monthly
numbers on revolving debt. For example, we may see credit card balances rise during the holidays
as consumers use their cards to fund gift purchases, he says. That
doesn't necessarily mean consumers have reached a turning point and have
suddenly become more comfortable with taking on significant amounts of debt.
"If last year's any guide, we might see a run-up in credit card usage
at the end of the year, then it gets paid off early next year," he says.
"I think things are improving and I think consumer spending is
growing." However, banks remain exceptionally cautious about the amount of
credit they're willing to lend, he says, and consumers are showing few signs
that they're willing to take bigger risks than they can handle.
The Fed's G.19 consumer credit report also looks at nonrevolving debt, which
includes auto loans, student loans and loans for mobile homes, boats and
trailers. Nonrevolving debt went up 9.2 percent to almost $1.9 trillion in September.
Overall consumer credit -- the combination of both revolving and nonrevolving
debt -- also increased, by $11.4 billion, with the steep rise in nonrevolving debt overwhelming the drop in credit card debt. Total consumer credit jumped 5 percent in September
to more than $2.7 trillion.
Economy slowly chugging along
The Federal Reserve's latest G.19 consumer credit report appeared one day
after President Barack Obama was elected to a second term as President of the
United States and several new congressional members claimed their seats in the
U.S. House of Representatives and U.S. Senate.
With the elections over and the
officeholders named, it will put to the test the idea expressed by some
economists that uncertainty over the election's outcome had been causing
businesses to hold back on hiring.
The unemployment rate currently
remains exceptionally high, at 7.9 percent, a number that doesn't include those
who have given up looking for a job. The economy is continuing to add jobs at a
slow but steady pace.
The U.S. economy added 171,000 jobs
in October, Labor Department said Friday. It also added 148,000 new jobs in September, 192,000
new jobs in August and 181,000 new jobs in July. The recent gains are
significantly better than the previous four months, when the economy added an
average of just 85,750 jobs per month.
Experts are skeptical that Tuesday's
election will make much of a difference to consumer confidence. However, they
say that the recent growth in the economy is encouraging and that if it
continues to make steady gains, it could prompt consumers to pull out their
wallets more often. Already, consumer spending jumped by nearly a full
percentage point (0.8 percent) in September, according to figures released Oct.
29 by the U.S. Commerce Department. Retail spending, in turn, rose by 1.1
"I would argue that there are
three big factors driving this," says North Carolina State University professor of economics
Michael Walden. The number of jobs added to the economy each month is trending
in the right direction, he says, giving consumers more confidence about their
ability to land a new job if they lose the one they've got.
Many consumers have paid down huge
debts that were crimping their ability to spend. "Consumers have done what
they needed to do and as they move closer to where economists think they need
to be, that's going
to help improve their outlook and cause them to spend more," says Walden.
"The third factor is the housing
market," he says. "I think the housing market has bottomed out."
Home sales are up significantly and so are prices. And that's "very
important for households' finances," he says, because higher home prices
help boost consumers' net worth.
See related: Fed: Cards slightly easier to get, but consumers remain cautious, Fed: No rate changes on the horizon until 2015
Published: November 7, 2012