Consumer credit card balances shoot up
Overall debt increase the sharpest in more than a decade
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.
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
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.
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.
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.
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
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.
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.
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.
See related: Fed says no to raising interest rates, Consumer credit card balances drop for the second month in a row
Published: May 7, 2012
Three most recent Research, statistics stories:
- 2014 CreditCards.com Penalty Rate Survey: The price of being late – Those who fall 60 days behind in credit card payments face an average penalty interest rate of 28.45 percent, according to CreditCards.com's survey of 100 major U.S. credit cards ...
- Credit card ownership statistics – How many credit cards does the average American have, and what types do they have? We've compiled industry statistics to answer those questions and more about who's carrying what cards ...
- Fed: banks ease grip on cards – Just as banks are finally lowering their barriers to credit card ownership, consumers aren't so keen to accept them, says a new Fed survey of senior loan officers ...