Consumer credit card balances shoot up
Overall debt increase the sharpest in more than a decade
Consumer credit card balances surged in March, according to new data from the Federal Reserve, breaking a two-month streak of declines and helping boost overall consumer credit balances by 10.2 percent -- the single biggest increase in more than a decade.
The Federal Reserve's latest G.19 consumer credit report showed a strong 7.8 percent rise in revolving debt as more consumers pulled out their wallets and let their card balances swell. Revolving debt, which is made up almost entirely of credit card debt, rose by $5.1 billion in March to $798.5 billion.
March's rise in credit card debt marks the first time this year card balances have grown. Consumer debt tumbled in the first two months of 2012, after rising steadily for four straight months. However, experts say that shrinking card balances in January and February were likely due to seasonal factors -- chiefly, paying off holiday debt -- and shouldn't be taken as an indication that consumers are pulling back on credit.
"I think that was a temporary blip," says David Nice, an associate economist with Mesirow Financial. The economy has been growing steadily, says Nice, and retail sales have been especially strong in the past several months.
Now that consumers have put the holiday bills behind them, they're likely to resume charging to their cards, adds Dennis Moroney, research director in the bank cards division with advisory services firm TowerGroup.
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 11.3 percent to $1.7 trillion in March. Overall consumer credit -- the combination of both revolving and nonrevolving debt -- jumped 10.2 percent in March, hitting $2.5 trillion.
"The last time we saw an increase that large or larger was in November of 2001 when total consumer credit increased by 18.4 percent," says Susan Stawick, a spokeswoman for the Federal Reserve.
The new normal?
Despite the smaller balances in the first two months of the year, card balances have grown five months out of seven and experts predict that we'll continue to see balances rise as more cardholders get comfortable with bigger balances.
The fitful increases in the past seven months mark a significant departure from the previous three years when recession-weary consumers concentrated on paying down their existing credit card debt.
During the depths of the recession, banks made it much more difficult for consumers with less than perfect credit to borrow, and charged off significant debt from those unable to pay their bills. Consumers, meanwhile, cut back on spending and largely ignored new card offers. However, now that the economy is showing signs of life again, cardholders and banks are beginning to reconcile and that's good news for economic growth, say experts.
For example, banks are gradually easing their lending standards, according to data released at the end of April by the Federal Reserve, making it easier for cardholders with less-than-perfect credit to qualify for cards with favorable terms. Meanwhile, consumers are showing a bigger appetite for credit and applying for more cards.
The number of people who are missing their credit card payments is also down significantly, adds Moroney, and that's made it easier for banks to take risks on new cardholders. "The banks are a little more emboldened to be easing credit and they are," he says.
That said, consumers are still facing an uncertain economic environment and that makes it difficult to predict how their finances will fare throughout the year. The U.S. economy added just 115,000 jobs in April, according to the Bureau of Labor Statistics, disappointing economists who hoped for more robust growth.
"The jobs numbers are not as strong as we would like and that may lead some people to feel insecure about their jobs even though we haven't seen mass layoffs," says Nice.
Consumers are also contending with higher food and gas prices, which may be pushing card balances up and increasing consumers' uncertainty about their ability to pay their bills. The consumer price index rose .3 percent, according to the labor bureau, down slightly from February.
However, despite the higher prices and lackluster jobs numbers, consumers are still hitting the malls, according to the National Retail Foundation, and spending more of their income on discretionary items such as building materials and gardening supplies, clothing and entertainment.
"There's a lot of pent-up demand in the market," says Nice. "A lot of people had been sitting on the sidelines waiting for better economic numbers." Now that the economy is looking slightly better, they're ready to start replacing broken-down goods.
Many consumers also say they are feeling better about their personal finances, according to the Thomson Reuters/University of Michigan Survey of Consumers, and are less pessimistic about their jobs prospects.
"More households reported an improved financial situation than anytime in the past four years and more consumers than ever before in the long history of the surveys reported hearing of improved employment conditions," said University of Michigan economist Richard Curtin in a news release. "Although consumers are not yet optimistic about future economic prospects, pessimism has recently faded at a rapid pace," added Curtin.
Published: May 7, 2012
- Americans' credit card debt hits $1 trillion – Our national credit card balance is hitting $1 trillion this month - the highest level since the Great Recession ...
- Survey: Debt collection problems widespread – For the one-third of Americans who face collection attempts, threats, falsehoods and other abuses not unusual, survey finds ...
- Poll: Americans more optimistic about getting out of debt – Americans are gaining confidence about becoming debt-free during their lifetimes, according to a new CreditCards.com national poll ...