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Fed makes it official: Card balances reach $1 trillion

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Credit card balances have surpassed $1 trillion, according to a federal report released Friday.

Consumer revolving debt, primarily credit card balances, increased by $3 billion on a seasonally adjusted basis to $1 trillion in February, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 3.5 percent.

The Fed revealed in its latest report that card balances reached $1 trillion for the first time since January 2009 in December, after revisions. But they fell back to $997.4 billion in January – the first time in over a year credit card debt decreased month-over-month. 

Total consumer debt, which includes car and student loans in addition to card debt, rose to $3.8 trillion in January, an annualized rate of 4.8 percent.

The average interest rate on all credit card accounts was 12.54 percent in February, according to the Fed report, up from a 12.41 percent average in November, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 13.86 percent, up from 13.61 percent in November.

Temporary lull in spending
Consumers reined in spending in February, according to a report by the Bureau of Economic Analysis. Spending fell by 0.1 percent when adjusted for inflation, while personal incomes were up by 0.2 percent. TD Economics Senior Economist James Marple said in a March 31 research note the weak spending level was likely a “temporary setback.”

“Weather and delayed tax rebates likely played a part and with strong consumer confidence and strengthening income growth, we fully expect spending to bounce back in the second quarter,” Marple wrote.

Meanwhile, a new study by the National Foundation for Credit Counseling (NFCC) showed lower spending may be a long-term trend. NFCC found more U.S. adults are spending less this year than they did in 2016 – reversing a trend that has held since 2009. Additionally, fewer consumers said they are saving the same amount as they did last year (54 percent versus 58 percent in 2016), and only about a quarter are saving more.

Perhaps more troubling, the number of households carrying card balances month to month rose to 39 percent – up from 35 percent in 2016 Sixteen percent of adults said they revolve card balances of $2,500 or more each month.

Nevertheless, consumers continue to manage their credit card balances well. The American Banking Association reported this month that bank card delinquencies fell by half a percentage point to 2.69 percent in the fourth quarter of 2016, remaining well below their 15-year average of 3.66 percent of all accounts.

Credit card debt getting costly
Carrying card debt will be costlier in 2017 than it has been in some time. The Federal Reserve hiked rates by a quarter of a point in December and again last month, and three more rate increases are expected this year. The next hike – and possibly an adjusted forecast for subsequent increases – should come in June.

“We think policymakers will prefer to wait for more data on the labor market and a degree of clarity on the likely path of fiscal policy before shifting the rate forecasts,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a March 15 research note. “By June, we think they will have enough information.”

The U.S. economy added only 98,000 jobs in March, but the unemployment rate fell 2 percentage points to 4.5 percent, according to the federal government. TD Economics Senior Economist Fotios Raptis said in a research note a snowstorm that hit the Eastern U.S. likely depressed job gains. But average hourly earnings rose by 0.2 percent and average weekly hours were unchanged – two factors Raptis said would support strong consumer spending and keep the Fed’s rate hike plans intact.

“This report is unlikely to change the Federal Reserve’s calculus as they consider their next moves to tighten monetary policy,” Raptis said.

Meanwhile, credit card APRs are marching upward in response to the Fed’s actions. Average APRs on new accounts moved closer to 16 percent this week, according to the CreditCards.com Weekly Credit Card Rate Report. Citibank, Wells Fargo, American Express and U.S. Bank have all matched the Fed’s March rate hike on their cards, and more banks are expected to follow suit in the weeks to come.

See related: Fed: Card balances fell $3.8 billion in January

Published: April 7, 2017

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Updated: 04-28-2017

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