Fed: Card balances rise for 6th straight month

Consumers' revolving debt balances grow 5.3 percent in August


American consumers' revolving debt continued to rise in August, marking the sixth consecutive month of growth this year, the Federal Reserve said Wednesday.

The revolving debt balance -- primarily composed of credit card balances -- hit $918.5 billion, an increase of about $3.9 billion, according to the Federal Reserve's monthly G.19 report on consumer credit. This growth spurt leaves card balances at the highest level since December 2009. The annualized growth rate now rests at 5.25 percent.

Total consumer debt rose $16 billion in August to about $3.47 trillion -- an annualized increase of 5.5 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. All figures are seasonally adjusted to account for expected fluctuations.

The average interest rate on credit card accounts was 12.22 percent in August, according to the Fed report, slightly up from May's 12.04 percent average, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were actually charged interest because they carried a balance was 13.59 percent, up from 13.49 percent in May.

Just as consumers continue to take on new debt, they are still spending at a consistently positive rate. Total spending increased by $54.9 billion (0.4 percent) in August, according to the Commerce Department. July's spending gains were also revised up to 0.4 percent from 0.3 percent. In particular, spending on motor vehicles and parts accounted for half the spending gains in both July and August.

"Consumers continue to drive the economic recovery," James Marple, senior economist for TD Bank, said in a research note. "The gains in August were broad-based across spending categories."

Additionally, wages and salaries increased $35.6 billion in August, slightly less than July's increase of $43.8 billion, but still positive nonetheless. Consumers are still saving at a steady rate, putting away $615.6 billion (4.6 percent) in August compared to $623.6 billion (4.7 percent) in July.

Overall, both of these economic reports show consumers haven't responded negatively to recent economic turmoil, including stock market uncertainty.

Scott Hoyt, economic director for Moody's Analytics, hopes that doesn't change in the months to come. "I think the bigger question is how much of an effect the decline in stock market prices will have, particularly among higher income folks," he said. "Will it start to play a role in how they are spending? We really haven't seen anything to support that just yet but I think that is something we definitely have to watch."

September jobs report supports rate hike delay
Despite increasing consumer card use and spending in August, the pace of hiring in September slowed substantially for the second month in a row.

According to a Labor Department report, a mere 142,000 jobs were created in September, well below the 200,000 jobs economists predicted, according to The Wall Street Journal.

Additionally, downward revisions were made to August and July's job creation figures, which now rest at 136,000 and 223,000, respectively. That makes for 59,000 total fewer jobs than previously reported.

"We had actually expected upward revisions to August figures," Hoyt said. "This is literally the first time we seen downward revisions to August figures in, like, 12 years. It was a big surprise and a big disappointment."

The unemployment rate remains at 5.1 percent, the lowest since 2008, according to the Bureau of Labor Statistics. However, this low rate can be attributed to a declining labor force participation rate. After 350,000 individuals dropped out of the labor force in September, the civilian labor force participation rate decreased from 62.6 to 62.4 percent after holding steady three months.

However, as Fed Chairman Janet Yellen has pointed out before, a sharp decline in the number of individuals participating in the workforce (or actively looking for work) indicates there is slack in the labor market, often caused by a lack of available job options that fit unemployed workers' skill sets. Some of those that recently dropped out of the labor market may not have done so voluntarily and may rejoin when the economy strengthens and they have more options.

While the unemployment rate has declined more than 1 percentage point since Yellen made those comments in early 2014, September's new employment figures show that slack still remains.

This may explain why wages haven't seen significant growth this year, according to Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities. "Yes, there are more jobs, but there are still either too many workers chasing them or waiting in the wings to do so that employers don't have to bid wages up to get the workforce they need," he said in a he said in a Washington Post column.

Average hourly earnings for all employees did not grow September, declining by a penny to rest at $25.09 following a revised nine cent increase in August. Over the year, average hourly earnings have increased 2.2 percent.

These recent employment figures come after the Fed's decision not to hike interest rates in September.  The central bank postponed a rate increase once again due primarily to worries that global economic and financial developments might dampen the U.S. economy's strength.

The Fed is expected to review rate hike plans at the next Federal Open Market Committee meeting Oct. 27-28, but at this time, an end-of-the year rate hike seems the most likely.

"Unless we get more disappointing news, we are expecting to see a rate hike in December," Hoyt said.

See related: New subprime accounts power credit card growth, 5 things to do now to avoid holiday debt

Published: October 7, 2015

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Updated: 10-21-2016

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