Fed: Card balances rise in January
Credit card balances rose only a slight 0.1 percent in January, despite a fiscal cliff cut in take-home pay and higher prices at gasoline pumps that cut into consumers' spending power.
But overall consumer debt, including revolving and nonrevolving loans, rose more strongly -- 7 percent in January, on top of December's revised 6.6 percent increase, the U.S. Federal Reserve said in its latest G.19 consumer credit report.
"Mainly that (increase) was driven by student loans, where the risk is being picked up by the federal government" said Keith Leggett, senior economist at the American Bankers Association.
Revolving debt, which is chiefly made up of credit card debt, rose to $850.9 billion, after falling a revised 4.4 percent in December to $850.8 billion.
First look at 2013, consumers and debt
The first look at debt markets of 2013 came amid economic crosscurrents that were pulling consumers in different directions, economists said.
Overall consumer debt including cards plus auto loans and student loans was $2.795 trillion in January, up from $2.779 trillion in December on a seasonally adjusted basis.
For the full year of 2012, revolving debt was up 0.4 percent and nonrevolving debt was up 8.4 percent.
"People saw a reduction in their income because of the payroll tax increase," said Leggett. The expiration of stimulus measures meant a 2 percentage point increase in payroll taxes in January, causing a direct hit to take-home pay.
Personal income fell even more than expected in January, the government said, posting a 3.6 percent drop from December, although consumer spending was able to eke out a 0.2 percent increase.
At the same time gas prices – which act like a tax on incomes in the short run – rose from already elevated levels. The national average for a gallon of regular climbed from $3.32 to about $3.70 during January, according to the AAA Daily Fuel Gauge Report.
"You wouldn't expect people to take an immediate hit in their standard of living," said Mesirow Financial Economist David Nice. The crimped incomes will put upward pressure on card borrowing through February and taper off in March, he said, as household budgets adjust.
That hit to income ran into consumers' widespread caution, which got new fuel from economic fears about the government's sequester. The sharp cut in federal spending that began Feb. 1 received widespread media attention in January, putting a cloud over expectations about the economy's performance for the rest of the year.
Overall consumer debt, including revolving and nonrevolving
loans, rose by a seasonally adjusted 7 percent in January, jumping $161 billion to $2.795 trillion. For the full year of 2012, revolving
debt was up 0.4 percent and nonrevolving debt -- boosted by car loans and student loans -- was up 8.4 percent.
The January look at consumer debt follows a headline-grabbing
report from the New York Federal Reserve Bank saying that signs of healing were apparent in consumer debt markets
at the end of 2012. The combined total of
household credit -- including mortgage loans -- turned upward in the fourth
quarter for the first time since the recession ended in the spring of 2008, Fed
economists said in February, supported by stability in mortgage lending and growth in student loans, car loans and credit cards.
Trends point to more
Households' spending muscle will have to fight against more
worries as the year goes on, but it should get a lift from improving conditions
in the core markets of jobs and homes, economists said.
"We have a lot of countervailing forces out
there," Leggett said.
The federal sequester could become more than the looming
threat it was in January and bring an actual hit to incomes, especially in households
that rely on paychecks from government contractors or the federal government
itself, Leggett said. The Congressional Budget Office has estimated that the
$85 billion cut in federal spending this year could cost the economy 750,000
jobs in 2013.
However, jobs so far have continued to show their slow
improvement trend, potentially increasing confidence for spending. The U.S.
Labor Department said Thursday that initial unemployment claims are down, with
the four-week average falling 7,000 to 348,750 to its lowest point since March
of 2008.That set the stage for upbeat expectations for the widely
watched monthly unemployment report for February, to be announced on
Friday. Consensus estimates predict an
increase in payrolls above January's
addition -- but not enough to lift the 7.9 percent jobless rate, Bloomberg
Another bright spot in the economic picture comes from the
stock market, where the Dow Jones Industrial Average has posted new all-time
highs in recent days. Although the broader market measure of the Standard &
Poor's 500 remains below previous highs, the news about the Dow may provide a
lift for expectations as well as an increase in household wealth for consumers
who are sitting on stocks and stock mutual funds.
"As people get their 401(k) statements in the mail, they
always like to see their number increasing," said Nice of Mesirow Financial. Signs of a turnaround in the housing market are an even more
important confidence boost, he added
"As people become more confident in the
economy moving forward," he said, "they're more free to spend."
See related: Credit card balances slide to end 2012
Published: March 7, 2013