Fed: Card balances up for 10th straight month

Revolving credit use accelerated in 2015


In terms of credit card debt, 2015 ended on a high note. Credit card balances rose by an annualized rate of 7.5 percent in December, marking the 10th consecutive month of expanding credit card balances, the Federal Reserve said Friday.

Total revolving debt -- primarily composed of credit card balances -- reached $935.6 billion, an increase of $5.8 million from November, according to the Federal Reserve's monthly G.19 report on consumer credit.

This news follows a November 2015 surge in card debt, when revolving balances first increased 8.3 percent to their highest level since October 2009. On an annual basis, revolving credit rose slightly more than 5 percent (see chart).

Total student loan debt is now approximately $1.32 trillion, according to the Fed report, a $9.5 billion increase since September, the last time these debt figures were measured. Outstanding auto loan debt totals about $1.04 trillion, an increase of $8.9 billion since September.

Including both revolving and nonrevolving debt, total consumer debt rose $8.7 billion in December to about $3.55 trillion -- an annualized increase of 7.2 percent. This balance includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected fluctuations.

Total consumer spending soft
News of increased card balances follows a report of flat consumer spending in December. Overall consumer spending actually decreased $0.7 billion (or less than 0.1 percent) in December after a $59.4 billion (0.5 percent) increase in November, according to the Commerce Department

However, wages have continued to rise, albeit slightly. Overall wages and salaries increased $13.1 billion in December, compared to $37.9 billion in November. Private wages and salaries increased $10.3 billion, compared with an increase of $35.3 billion. Lastly, government wages and salaries were also up $2.8 billion, compared to $2.6 billion in November.

"Income restoration bodes well for consumer spending," according to Carl Tannenbaum, chairman of the American Bankers Association Economic Advisory Committee and chief economist for Northern Trust. As low oil prices remain and wages growth persists, spending should pick back up.

Consumers are still saving at a high rate, too, which is another indicator increased spending may be on the horizon. Consumers put away $753.5 billion (5.5 percent of disposable income) in December compared to $717.8 billion (5.3 percent of disposable income) in November, per the Commerce Department report.

2016 job market starts slow but steady
Consumer spending in all areas -- credit cards included -- may also increase following the latest employment report, which revealed that while January's job creation figures were lower than expected, the new year is still off to a solid start.  

According to the Labor Department, the unemployment rate inched down to 4.9 percent, the lowest rate reported since February 2008. Average hourly earnings for all employees increased 12 cents to $25.39. Over the year, average hourly earnings increased 2.5 percent.

However, only 151,000 jobs were created in December, below the predicted 180,000 jobs gain, according to Glassdoor Economic Research. Furthermore, revisions made to November and December's job creation figures now reflect 2,000 fewer total jobs than previously reported. With such adjustments, employment gains have averaged 231,000 per month over the past three months.

At first glance these figures may look concerning as they follow December's hefty 262,000 job creation total, but economists aren't too worried. After all, we just wrapped up a holiday season and some intense weather cycles, two things that can temporarily affect the job market, according to TD Bank senior economist Michael Dolega.

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"In fact, the weakness appears concentrated in temporary help services, which cut the 25,000 jobs that it added the previous month -- likely related to parcel shipments and other seasonal work," he said. "Aside from that, the education and government sectors lost 50,000 and 7,000, respectively, both likely related to the blizzard after-effects."

Overall, the economy is still growing, which is good news for those who aren't spending as much or are still looking for employment.

"The bottom line is that the U.S. labor market appears resilient and continues to make progress despite the global headwinds and a high U.S. dollar," Dolega added.

Rate hikes will come in time
Last week the Fed announced its decision to postpone another rate hike until more data showing continued economic growth is released. This is temporary good news for balance-carrying cardholders, as many believe future 2016 FOMC meetings will still result in further interest rate increases.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, was not surprised with the Fed's unanimous decision to postpone an additional rate hike, but still believes a 0.25-basis point interest rate hike at the March meeting is possible, assuming markets stabilize.

"The data [released] between now and then will need to be decent," he wrote in a research note sent to clients Friday.

So far so good, as today's report of a 12-cent average hourly earnings increase suggests further rate hikes, according to a Bloomberg Business analysis.

The American Bankers Association has projected a more specific rate hike timeline and expects three more will come before the end of 2016. These increases could potentially raise variable interest rates 1.00-1.25 percent, according to a Feb. 3 ABA statement.

Consumers should consider these predictions when using variable interest rate credit cards in the months to come -- especially as the total revolving balance continues to rise.

"Use your card for convenience but be sure you can pay it off right away so you don't end up paying any interest," advised Bruce McClary, spokesman for the National Foundation of Credit Counseling. If that's not an option, "put together a plan to get that balance cleared away as soon as possible. So you can get it paid off and avoid paying as much interest as possible."

See related: Tax refund: Using it to pay off credit card debt, Rate survey: Average card rates fall to 15.12 percent

Published: February 5, 2016

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Updated: 10-22-2016

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