Fed: Credit card balances shot up October
Card debt reverses decline, rises 6.1%
at the federal government shutdown and bulked up their credit card balances vigorously in October.
Reserve's measure of revolving debt rose at an annual rate of 6.1 percent in
October to $856.8 billion, on a seasonally adjusted basis. The revolving debt figure is mainly made up of balances on credit
The Fed also revised its previous revolving debt reading for August upward to positive 1.4 percent, from negative 1.2 percent, putting the results for the third quarter modestly in the positive column, at 0.4 percent.
short-term consumer debt, which also includes student loans and financing for cars,
boats and mobile homes, rose 7.1
percent to $3.076 trillion, according to the monthly G.19 report released Friday.
gasoline prices freed up a considerable amount of cash for consumers in
October, and they appear to have tuned out the drama in D.C. and gone shopping,"
Regions Bank Chief Economist Richard Moody said in an analysis. Inflation-adjusted
sales beat analysts' expectations and rose 0.4 percent in October, despite a
downturn in consumer sentiment.
The shutdown effect
government's 16-day partial shutdown in October furloughed 800,000 workers and
heightened fears that political gridlock might keep the economic recovery in
the slow lane. But the impact of the shutdown was muted because workers were
out a relatively short time, and they received back pay.
personnel and laid-off defense workers swipe their cards more to maintain their
might have seen some of that, but it would have been pretty quickly reversed,"
Moody said. "That was such a short time -- and you're talking about a
relatively small sliver of the population."
forms of consumer debt, borrowing on credit cards has largely flat-lined since a
recession-induced slide in balances bottomed out in 2011. By itself, October's surge does not signal a break from that pattern. Card balances now make up
about 28 percent of consumers' non-housing debt, down from 38 percent in 2008, according
to the G.19 report.
Consumers aren't the only ones exercising caution. Bankers are more willing to
make auto loans, secured by property, than to hand out new credit cards, according to the Fed's survey of senior loan officers.
unemployment numbers announced Friday should brighten spirits going into the
holidays, and might uncork household spending. The Labor Department said that
the jobless rate fell sharply to 7.0 percent in November as job creation
accelerated. Economists say that a healthy job market is the biggest driver of
net new jobs, November's report "is unequivocally a great one and is
indicative of a labor market that is finding its rhythm," TD Economics
Senior Economist Michael Dolega said in a research note. The showing means the
Federal Reserve is more likely to begin reducing its support for low long-term
interest rates before long, he said. However, short-term rates that determine
variable credit card APRs are not expected to rise until unemployment improves
a good deal more, to 6.5 percent.
retailers mobilize their seasonal sales push, it remains to be seen if
consumers will relax the financial discipline they've gained since emerging
from the Great Recession.
"I don't think anyone feels warm and
fuzzy yet," said Dennis Carlson, deputy chief economist at Equifax. Consumer sentiment reached a low for the year
in October amid the federal budget impasse. "Folks have been trying to pay
down cards, and using cards more to make purchases that they will pay
is to compartmentalize debt on separate cards to minimize costs, he said. You can
use one card for ordinary transactions and pay off the monthly balance in full,
avoiding finance charges. A larger
purchase can go on a separate card, if it will take more than a month to pay
Store cards see strength
Although consumers are cool to bank cards, the credit bureau has seen
enthusiasm for store cards increase, as stores warm up to applicants with tarnished
credit. For the year through August, merchants issued 8.2 million cards to
subprime borrowers, a six-year high for the period, Equifax found.
The push from stores could intensify as the
selling season heads into its final weeks, Carlson said. At the mall and
online, discounts and interest-free periods connected to store cards seem to be
been out and about this holiday season, I know a lot of stores are pushing
financing," he said. While buying a $450 keyboard for his daughter at Sam
Ash, "the salesman was really pushing the store card." Then there was
the sign he spotted on the roadside in Florida that said "Puppy Financing
able to resist both come-ons, however, and he suspects many consumers are doing
the same. "One thing we're seeing is the disciplined consumer," he
said. "People want to get good deals, but they're also mindful of accruing
See previous story: Credit card balances extend their slide
Published: December 6, 2013