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Fed: Card balances fell in July

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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 billion.

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," Dutkowsky said.

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



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