Fed: Card balances fell in July
Credit card balances fell in July, a month of sluggish summer
consumer spending and languid job growth, extending a pullback in June.
Revolving debt, which is mainly made up of credit card
balances, was down 2.6 percent, on an annualized basis, the U.S. Federal Reserve
said in its G.19 consumer credit report for July.
The seasonally adjusted figure came after a string of ups
and downs in revolving debt, which fell at a downwardly revised 5.2 percent rate in June after growing a revised 8.4 percent in May.
"The economy is not all the way back by any type of
measure," said Donald Dutkowsky,
professor of economics at the Maxwell School of Citizenship and Public Affairs
at Syracuse University. "Consumers have been holding their spending relatively tight."
The amount of revolving debt outstanding was $849.8 billion,
compared with a revised $851.6 billion in June. During the nearly five years since the financial crisis hit in the fall
of 2008, the amount of revolving debt outstanding has fallen by more than $150
The Fed's measure of total short-term consumer debt -- which excludes mortgages but includes car loans and student loans as well as credit card debt --
was $2.85 trillion in July, up an annualized 4.4 percent for the month. During the second quarter of 2013, consumer
credit advanced at a 5.1 percent annual
rate, while the revolving debt component lagged behind at 1.2 percent.
"As much as the economy would like to see greater
consumer spending, households have learned their lesson after the Great Recession,"
Lackluster economy points to low rates
Consumers were spending just a little more freely in July. Personal consumption spending rose $16.3
billion or 0.1 percent, according to the U. S. Commerce Department. That rise
matched the 0.1 percent increase in real disposable income for the month. Real disposable income is what's left in your
pocket after taxes and price increases. The pace of spending came in below
analysts' median expectations.
"This is a disappointing report on a number of
levels," TD Economics Senior Economist James Marple said in a research note.
Hopes for faster economic growth hinge on a pickup in spending from households
and business to offset the drag from the federal government's package of tax
increases and spending cuts known as the sequester.
"The government sequester is a major headwind on this
economic expansion," Dutkowsky said. "I'm surprised (it) has gone on
this long." The sequester's belt-tightening
began squeezing government spending in March.
The jobless rate edged down to 7.3 percent in August,
compared to 7.4 percent in July and 8.1 percent a year ago, according to the
Labor Department's monthly employment report.
But economists said that even that marginal improvement for the month
had a dark side. The rate decline "was
for entirely the wrong reason -- more workers leaving the labor market," Marple
of TD Economics said in a research note.
The generally weak economic picture leaves little doubt that
the Fed's rate setting body will continue its low-rate policies when it meets
next week, economists say. Analysts
expect that short-term rates -- which determine credit card APRs -- will remain
at their historic lows until about mid- to late 2015.
The Federal Open Market Committee is expected to begin
tapering off its bond purchasing program -- which is designed to keep long-term
rates down -- by the end of the year. An announcement about the taper could come as soon as the
FOMC's meeting next week, but the unexpectedly weak job numbers could convince
the Fed to extend the stimulus measure longer.
"The August employment leaves the FOMC in a tough
spot," Regions Bank Chief Economist Richard Moody said in an analysis.
The Fed's latest look at consumer credit and debt comes as
the five-year anniversary of the financial crisis approaches. This month in 2008, Lehman Brothers filed
bankruptcy and the federal government took over the mortgage pipeline companies
Fannie Mae and Freddie Mac, as a collapse in housing-backed securities nearly froze
the financial system.
Household debts have plummeted, then rebounded somewhat
since the crisis. Consumer debt including mortgages, as measured by the Federal
Reserve Bank of New York, reached a turning point at the end of 2012, marking
its first quarterly gain since the spring of 2008.
"Over the last four years, we've cleared away the
rubble from the financial crisis and begun to lay a new foundation for
stronger, more durable economic growth," said Jason Furman, chairman of
the White House Council of Economic Advisers, in a statement last week reacting
to the job market.
Five years after the crunch, it looks as though U.S. credit
card use may have permanently shifted gears. Back in July of 2008, consumers had
$987.5 billion in revolving debt, about $167 billion above current levels,
according to the Fed's yardstick.
See related: Fed: Credit Card balances spike in May
Published: September 9, 2013