Fed: March card balances rise 14.2 percent

Consumers continue to borrow despite signs economic growth may be slowing


Credit card balances ended the first quarter of 2016 on a high note, increasing a hefty $11.1 billion (14.2 percent) in March, the Federal Reserve said Friday. This marks the largest month-over-month increase in seasonally adjusted card balances, in dollar terms, since February 2001.

Total revolving debt – primarily composed of credit card balances – rose to $951.6 billion in March, according to the Federal Reserve's monthly G.19 report on consumer credit.

Thanks to the latest revolving debt figures, card balances are at their highest level since August 2009, when revolving debt balances reached $951.7 billion. Consumers have added approximately $13.7 billion to their cards so far this year and revolving debt is now growing at an annual rate of 6 percent. All figures are seasonally adjusted to account for expected fluctuations; percentages are given as an annualized rate.

These new card debt figures from the Federal Reserve align with other industry measures indicating card use has been on the rise over the past year. According to Credit Suisse, U.S. credit spending on major network cards (Visa, MasterCard and Discover) increased 8.3 percent year-over-year in the first quarter of 2016.

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Total consumer debt up 10 percent
While the national revolving debt balance is on the rise, national student and auto loan balances also continue to escalate.

The national student loan debt balance is now approximately $1.35 trillion, according to the Fed report, a $31.7 billion increase since December, the last time these debt figures were measured. Outstanding auto loan debt totals about $1.05 trillion, an increase of $13.5 billion since December.

Overall, total consumer debt -- including revolving and non-revolving debt -- rose nearly $30 billion in March to about $3.59 trillion -- an annualized increase of 10 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.

Consumer spending still minimal
Consumers may be borrowing more this year, but spending remains sluggish, according to the Commerce Department.

In March, consumer spending increased by only $12.8 billion (0.1 percent), which is less than the 0.2 percent increases recorded in both February and January after revisions.

March spending figures were largely affected by a drop in auto sales and low utility expenses due to mild weather, but spending will pick up again this summer, according to Ian Shepherdson, chief economist for Pantheon Macroeconomics.

“Spending barely rose in two of the three months of the first quarter, but we expect a much stronger performance in Q2, starting in April,” he said in a research note sent to clients.

For now, though, soft consumer spending may be taking a toll on overall economic growth, as evidenced by the Commerce Department’s first gross domestic product (GDP) report of 2016.

Real GDP -- which represents the size of the economy based on the total dollar value of all goods and services produced, minus the value of goods and services used up in production -- only increased at an annual rate of 0.5 percent in Q1 compared to a 1.4 percent annual growth rate recorded in Q4 of 2015.

The GDP report also indicated that consumer spending, which accounts for more than two-thirds of U.S. economic activity according to Reuters, increased at a 1.9 percent rate in Q1 of 2016 compared to 2.4 percent in Q4 of 2015. The consumer spending growth rate has not dipped this low since Q1 of 2015, when it was 1.8 percent, according to historical data.

Job market growth slows
Concerns that the pace of economic growth is starting to slow prevail, following the latest monthly employment report.

According to the Labor Department, only 160,000 jobs were created in April, slightly below the 203,000 job gains predicted by economists, according to MarketWatch. Employment gains averaged 232,000 per month over the 12 months prior to April.

“This morning's report was disappointing,” said TD Bank senior economist Michael Dolega. “After two months of 200,000-plus job growth, payroll gains slowed to their lowest pace in seven months.”

In March, the labor force participation rate, which represents the portion of consumers who are working or actively looking for work, increased to 63 percent, the highest it had been since a 38-year low reached in September 2015. The latest employment report brought the labor force participation rate down to 62.8 percent.

However, wages are still increasing. Average hourly earnings for all employees rose 8 cents to $25.53 in April, which follows a 6-cent increase in March. As a result, wages have increased 2.5 percent over the past year. The unemployment rate also remains unchanged at 5 percent.

See related: CFPB proposes arbitration limits, Feds hold interest rates steady for now

Published: May 6, 2016

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Updated: 10-24-2016

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