Credit card balances post spring growth


Credit card balances climbed in March, as consumer spending began to thaw out following an especially harsh winter.

Revolving consumer debt, which is chiefly made up of credit card balances, rose at an annual pace of 1.6 percent in March, according to the Federal Reserve's preliminary G.19 consumer credit report. That reversed a 3.8 percent decline in February.

Total short-term consumer debt also climbed in March, advancing 6.7 percent. The Fed's measure of total debt adds car loans, student loans and other consumer installment loans to credit card debt, leaving out home mortgages.

A bump in consumer spending in March signaled that households are emerging from a particularly chilly and lean winter. Consumer spending rose $107.2 billion, almost double the $54.3 billion rise in February, the Commerce Department said.

However, economists said that the appetite for debt may already be nearing its limits.

"Household balance sheets are healthier and credit conditions appear to be improving," TD Economics economist Michael Dolega wrote in a research note, "but with the savings rate close to a six-year low, consumers will be increasingly hesitant to charge purchases on credit without more robust income gains."

The savings rate, at 3.8 percent of income, hit its second-lowest level in six years in March. Although job growth is shrinking the ranks of the unemployed, "wage growth has lagged," Dolega said. Income growth was 0.5 percent in March, far behind the nearly 1 percent jump in spending.

Consumers in economic crosscurrents

More than five years after the financial panic that triggered the 2009 recession, the U.S. economy continues to struggle back toward health, keeping household budgets thin by pre-recession standards. In the first quarter, economic growth nearly flatlined at 0.1 percent. Economists expect even that result could be revised downward, in the wake of a bigger-than-expected trade deficit. That might put the first quarter gross domestic product into negative territory, which would be the first contraction since the first quarter of 2011.

Negative growth isn't good, but one bad quarter doesn't necessarily mean the recovery has gone into reverse.

"If it's a one-off thing -- there were some issues with very bad weather," said David Nice, associate economist with Mesirow Financial. The firm forecasts that much of the activity missing in the January-February-March period will show up in the second quarter.

In contrast to the economic news, banks' loan officers say they expect loans on cards will grow quite a bit more before topping out. In a survey of senior loan officers by the Federal Reserve, 15 of 22 banks said card loans will stabilize at a growth rate of about 6 percent a year or more, the growth rate seen before the recession. So far in the years since the recession, annual growth in card balances has reached only about 1.3 percent.

Reaching pre-recession growth levels will be a huge leap for cards, Nice said. However, the fact that bankers expressed optimism about card lending is an important indicator about their outlook. "I would take that as a positive -- it shows their mood," he said.

Loan officers were split on whether regulation is keeping lending tight. Among 41 banks responding to the question, 18 said the Credit CARD Act was "somewhat important" in holding back credit card loans in 2013, but 20 said the law was "not important." The American Bankers Association has said that regulations on cards have caused banks to hold back on offering credit.

Nice pointed to the overhang of student debt as a more important drag on card loans, and on consumers' budgets in general.  Student debt totals more than $1 trillion, having far outpaced credit card loans. Borrowers will have to rein in their spending for years as the balances are paid down.

"It's not only affecting young people," Nice said, but also displaced workers who retrained for new jobs and parents who have shouldered part of their children's education burden. "They're also getting hit by it."

See related: Card debt falls in February

Published: May 7, 2014

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