Fed: April card balances rise 2.1 percent

Consumer borrowing, spending rates high despite slowing job market


Americans continued to favor credit cards in April, as card balances rose $1.7 billion (2.1 percent), the Federal Reserve said Tuesday.

Total revolving debt – primarily credit card balances – rose to $951.5 billion in April, according to the Fed’s monthly G.19 report on consumer credit. This uptick follows the largest month-over-month increase in seasonally adjusted card balances, in dollar terms, since February 2001.

With these new revolving debt figures, card balances now are at their highest level since August 2009, when revolving debt balances reached $951.7 billion. Consumers have added approximately $13.6 billion to their cards so far this year, and revolving debt is now growing at an annual rate of 2 percent. All figures are seasonally adjusted to account for expected fluctuations; percentages are given as an annualized rate.

While card balances may keep rising, consumers are not yet overextending themselves, said George Mokrzan, director of economics for Huntington Bank. "Consumers are being relatively cautious,” he said. “They're not letting balances get beyond their ability to pay.”

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Credit card delinquency rates confirm this. According to the Federal Reserve Bank of St. Louis, the national credit card delinquency rate for all card accounts with national banks was a mere 2.15 percent at the end of the first quarter, well below the 6.81 percent peak reached in 2009.

Overall, total consumer debt -- including revolving and non-revolving debt -- rose nearly $13.4 billion in April to about $3.6 trillion -- an annualized increase of 4.5 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 rebounds
After a slow start to the year, overall consumer spending is bouncing back – and fast.

Consumer spending increased by $119.2 billion (1.0 percent) in April, according to the Commerce Department. This news follows a flat month of consumer spending in March and only 0.2 percent spending growth in February, after revisions. Months of high savings rates, low fuel prices and steady wage growth may have finally given consumers the confidence needed to start spending again.

“This is exactly what we've been waiting for,” TD Economics senior economist Michael Dolega said in a research note. “In nominal terms, the April spending surge marked the biggest gain since August 2009.”

New job figures could delay rate hike
Despite high rates of consumer borrowing and spending, the pace of hiring in the U.S. has slowed dramatically. According to the Labor Department, only 38,000 jobs were created in May, the weakest monthly gain since January 2010, when 28,000 jobs were created.

Additionally, after downward revisions made to April and March figures, job gains were 59,000 fewer for those months than previously reported. As a result, employment gains have averaged only 116,000 per month over the past three months. 

The unemployment rate declined 3 points in May to 4.7 percent from 5.0 percent in April, but that was largely due to a decline in labor force participation. Nearly half a million people (458,000) dropped out of the workforce in May. Additionally, the labor force participation rate – which had made historic gains in the first quarter – has declined by 0.4 percent over the past two months.  

Wages continue to slowly increase. Average hourly earnings for all employees rose 5 cents to $25.59 in May, following a revised 9-cent increase in April. However, ongoing wage growth might not be enough to support the interest rate increase many had previously expected the Federal Reserve to implement later this month.

“The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause,” independent economist Diane Swonk told The New York Times.

After May’s employment report was released Friday, Fed board member Lael Brainard voiced her concerns about raising rates too quickly during a speech to the Council on Foreign Relations in Washington, D.C. "There is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals," she said.

However, Fed Chairwoman Janet Yellen said that while the sharp downturn in the labor market is worth noting, overall optimism about the strength of the economy remains. “One should never attach too much significance to any single monthly report,” she said at the World Affairs Council of Philadelphia on Monday.

The U.S. economy "has registered considerable progress over the past several years toward the Federal Reserve's goals of maximum employment and price stability," she said, highlighting more positive overall employment and wage growth figures.

Yellen stressed there is no preset course for policy decisions, and when the time comes to consider raising rates, all economic growth and risk factors will be weighed. These factors include inflation and global economic conditions. She gave no clear sign of when to expect the next rate boost, but she said “gradual” interest rate increases remain in the forecast.

For now, debt-carrying consumers and industry leaders will have to wait to see what happens with variable interest rates in the weeks -- and months -- ahead. The next Fed meeting is scheduled for June 14 and 15.

See related: CFPB proposes regulations on payday loans, other 'debt traps', Most prepaid cards fail to disclose fees

Published: June 7, 2016

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Updated: 10-26-2016

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