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Fed: Card balances up $2.4 billion in December

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Credit card balances rolled on toward $1 trillion in December, according to a federal report released on Tuesday.

Consumer revolving debt, which is mostly credit card balances, increased by $2.4 billion on a seasonally adjusted basis to $995.5 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 2.9 percent.

December’s card balances were the highest since February 2009, when they reached $998 billion. Consumers took on $57.6 billion in new credit card debt in 2016. It’s likely that card balances have already passed the $1 trillion mark — a level not seen since January 2009 — this year.

“2017 will be a record-setting year for credit card debt,” said Matt Schulz, senior analyst at CreditCards.com. “Americans’ credit card debt will almost certainly reach its highest levels ever later this year and keep growing from there.”

Total consumer debt — auto and student loans as well as credit cards — reached $3.76 trillion in December, an annualized rate of 4.5 percent. Student loan debt has risen by $9.6 billion to $1.41 trillion since the Fed last reported on it in September. Car loans have increased by $12.4 billion to $1.11 trillion since September. 

December’s increase follows an $11.8 billion surge in card balances reported in November.

Going out with a bang
Consumers closed out 2016 with healthy spending amid modest growth in personal income. Personal consumption expenditures rose 0.5 percent in December, while personal income grew by 0.3 percent, according to the Bureau of Economic Analysis.

Moody Analytics Senior Director Scott Hoyt said that much of the December spending growth took place in categories that are not relevant to credit card spending, such as utilities and automobiles. A bright spot for credit cards was holiday spending, which skewed toward online purchases. The prospects for overall consumption growth are solid going forward, Hoyt said.

“Consumer spending’s going to grow,” he said. “Goods prices aren’t going anywhere.”

Consumers helped drive economic growth in 2016, and also spurred an expansion of the credit card market. New credit card accounts increased by 10.7 percent year-over-year in the third quarter of 2016, according to the American Bankers’ Association’s (ABA) January 2017 Credit Card Market Monitor. Monthly purchase volumes grew between 6 to 9 percent across the subprime, prime and super-prime risk tiers, ABA said.

“The financial health of consumers has improved, consumer confidence is high and credit card debt is stable relative to income,” Jess Sharp, executive director of ABA’s Card Policy Council, said in a news release.

Fed biding its time on rate hikes
The Federal Reserve opted to stand pat on interest rates at its February meeting, as inflation remained below its 2 percent target. The Fed raised its federal funds rate by a quarter of a percent in December, and it’s expected to raise rates by another 75 basis points this year.

“The committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further and inflation will rise to 2 percent over the medium term,” the Federal Open Market Committee said in a statement.

Meanwhile, credit card interest rates have steadily increased since the Fed’s last action in December. The national average APR reached a new high of 15.44 percent last week, according to CreditCards.com’s Weekly Credit Card Rate Report.

The Fed gave no indication of when it might raise rates again, but TD Economics’ Dolega said it would likely hold out over the “next couple of meetings.”

“Having said that, should economic activity continue to progress at a moderate pace … we do expect the Fed to hike before the mid-year mark and once again in the second half of this year so as not to fall behind the curve,” he wrote in a Feb. 1 research note.

GDP grew less than 2 percent in the fourth quarter of 2016, but hiring is strong so far this year. The U.S. economy added 227,000 jobs in January, well above the consensus estimate of 180,000. The unemployment rate ticked up one percentage point to 4.8 percent, but Dolega attributed the rise to more people jumping back into the work force.

“This report looks like a blockbuster one on many fronts,” Dolega said. “The breadth of hiring strength across industries is particularly encouraging as far as the U.S. economic momentum is concerned.”

Wages grew only 2.5 percent in January, putting a slight damper on an otherwise positive jobs report. Income growth will be critical this year as consumers face higher interest charges on their credit card balances. 

See related: Fed: Card balances surged by $11 billion in November

Published: February 7, 2017

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Updated: 04-23-2017

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