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Credit card balances fall in March

By Fred O. Williams

Credit card balances ended two months of modest upward movement in March, falling despite an improving job climate and expanding paychecks.

Revolving debt, which is mainly made up of credit card balances, fell $1.7 billion in March, following February's revised $400,000 increase, the U.S. Federal Reserve said in its latest G.19 consumer credit report.

The amount of outstanding revolving debt was $846.2 billion, compared with a revised $847.9 billion  in February.

Overall consumer debt, including cards plus auto loans and student loans, rose $8 billion to reach more than $2.8 trillion in March, compared to $2.79 trillion in February.

The drop in revolving credit ran counter to the rise in total consumer debt, which has seen car loans and student loans outpace the riskier, unsecured category of credit card debt.

Consumer spending slows

The pullback from credit card debt came as consumers slowed the pace of spending increases. Consumer spending rose $21 billion in March, down from February's $81.6 billion increase. Personal income was up $30.9 billion, or a scant 0.2 percent for the month.

"I think we probably reached a bit of a high-water mark, at least in the growth rate of consumer spending in the near term," said James Marple, senior economist at TD Economics. Among other factors, the sharp federal budget cuts known as the sequester will have a deepening impact on pay of federal workers and federal contractors as the year goes on.

Consumer confidence fell in March, as the negative news around the sequester helped sour the outlook. The wholesale cuts in federal spending created uncertainty about the future, The Conference Board said. Perhaps not surprisingly, confidence rebounded strongly in April, following sunnier employment numbers.

I think this is going to be the year of the return of the consumer.

-- Michael Walden
North Carolina State University

The Labor Department's unemployment report for March initially said only an anemic 88,000 jobs were created, underperforming analysts' expectations and raising concerns about a "spring slump" in the economy.

"It had looked as though March was a really lousy month," Marple said.

But it turned out the job market was actually better than reported. Revised figures said the economy created 138,000 jobs in March. That, plus an upward revision for February and gains in April, helped pull down the current unemployment rate down to 7.5 percent, beating most expectations.

"I'm in the camp that thinks the economy is stronger than it was portrayed," said Michael Walden, professor of economics at North Carolina State University. "I think this is going to be the year of the return of the consumer."

Demand for credit grows

With the job market improving, households will ease back into major purchases that have been put on hold for years, he said. As time goes on, the replacement of a tired refrigerator or air conditioner graduates from a "want" to a "need" and inserts itself into the household budget.

"I think we'll see consumers begin to replace durable goods, all of which are heavily aged," he said. "All of this translates into more borrowing."

Indeed, consumer demand for plastic is outpacing lenders' willingness to give it. According to the Federal Reserve's survey of senior loan officers, 18 percent of banks saw stronger demand for credit cards during the first quarter, while only about 7 percent said they had eased their standards for granting new cards. The survey results suggest that the weak rise in credit card balances has more to do with tight lending practices at banks than wariness by shell-shocked consumers.

Rates on new credit card offers are hovering at just under 15 percent, according to the CreditCards.com weekly rate report. The review of 100 cards found an average APR of 14.93 percent, compared to 15.01 percent six months ago.

Published: May 7, 2013


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Updated: 09-25-2016


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