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Fed: Card balances fell by $300 million in July

Revolving debt was essentially flat in July as consumers slowly began to rebuild their finances in the pandemic


Credit card balances continued to dip in July, though the rate of decline has moderated as consumers slowly rebuild their finances after taking a hit from the coronavirus pandemic.

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Credit card balances continued to dip in July, though the rate of decline has moderated as consumers slowly rebuild their finances after taking a hit from the coronavirus pandemic.

Consumer revolving debt – which is mostly based on credit card balances – was down by $300 million on a seasonally adjusted basis in July to $994.7 billion, according to the Fed’s G. 19 consumer credit report released Sept. 8.

In July, card balances fell 0.4% on an annualized basis, following June’s 2.8% annualized dip. This follows steep annualized declines in May (28.6%) and April (65%). Total consumer debt outstanding – which includes student loans and auto loans, as well as revolving debt – rose $12.3 billion to $4.139 trillion in July, a 3.6% annualized increase.

In May, for first time since September 2017, card balances dipped below the trillion dollar mark. Card balances had touched an all-time high in February before the coronavirus pandemic started impacting consumer spending and bank lending.

See related: Credit card spending rebounds from pandemic plunge

CFPB finds no significant COVID-19 impact on credit card accounts

Based on a study the Consumer Financial Protection Bureau did on the early impact of the pandemic on consumer credit, it seems that through June consumers did not experience “many of the negative credit consequences that might be expected during periods of high unemployment and large income shocks.”

This positive outcome is likely tied to the government assistance provided through the Coronavirus Aid, Relief and Economic Security Act (CARES Act), the CFPB surmises.

Among the consumer protection agency’s findings:

  • The reported rate of new delinquencies on credit card accounts, for all demographics and across credit score ratings, dropped between March and June, after remaining flat or rising gradually in the prior year. The share of delinquent accounts that fell further in delinquency also dropped off.
  • Availability of credit card debt fell slightly between March and June. Credit limits on existing cards went down a bit, whereas they were previously on an uptrend. While “superprime” borrowers saw a minor dip of $71 on average in their credit limits, prime and “near prime” borrowers saw their credit limits flatten. On the other hand, there were practically no changes in credit limits for subprime and “deep subprime” borrowers.
  • Credit card issuers also closed more accounts, with the most closures tied to borrowers with very high credit scores. Between March and May, on average 1.2% of accounts were closed by issuers, a rise of 50% from the 0.8% average for the first few months of 2020 (which was more in keeping with 2019 trends). Most of these closures are tied to inactive accounts, which are often closed by issuers, as well as those the CFPB designates as “closed by creditor,” for reasons that are not specified.
  • Average credit card balances were off 10% during this period, as consumer spending also declined. This dip occurred across all consumer groups broken down by demographics, including income groups, and credit score.


Consumers more optimistic about meeting debt payments

Consumers continue to remain more optimistic about their ability to make their minimum debt payments, based on the Federal Reserve Bank of New York’s Survey of Consumer Expectations for July. The regional bank reports that the share of those concerned that they would miss making their minimum debt payments dipped to an average of 9.5%, from June’s 9.8%.

Responses also pointed to lower availability of credit compared to pre-COVID levels. More respondents find it easier to access credit and also expected that credit would be easier to get in a year’s time, and more of them also report that credit is harder to obtain and anticipate it will be harder to get in the next year.

Respondents were less optimistic about the outlook for their household finances in a year’s time, with more of them expecting this to worsen, and fewer seeing an improvement. At the median, expectations for growth in household spending rose 0.2% to 3%, while the median expectation for growth in household income was steady at 2.1%.

See related: Should you get a retail credit card during the pandemic?

Labor market continues slow healing

Consumers anticipate, at the median, that their year-ahead earnings growth will be 2%, up from a survey low of 1.6% in June. However, the average expectation that the unemployment rate in the year ahead will be higher was 39.3% in July, up from June’s 35.1%.

The average perceived probability of losing a job in the next year also rose to 16% in July, from 15%. However, consumers were more optimistic about landing a new job if they did lose their current ones, with this average probability rising to 48.9%, from 47.6%.

In the meantime, the U.S government reported that the economy added 1.37 million jobs in August, and the unemployment rate dipped to 8.4%. Ian Shepherdson, chief economist at Pantheon Macroeconomics, observed in emailed commentary that a boost of 344,000 jobs came from the government’s hiring, mostly on account of delayed census hiring.

Commenting on the jobs report, Diane Swonk, chief economist at Grant Thornton, noted in a blog post, “Job gains were good but not enough to lift us out of the hole created by COVID-19, while the headwinds to further improvements are picking up.

“Food service and retail workers are at risk of another round of layoffs in the fourth quarter when firms and individuals pull back on holiday celebrations,” Swonk wrote. “High-wage layoffs are expected to pick up. COVID-19 will leave deep scars on the labor market if Congress does not do more to alleviate the near-term pain associated with the crisis.”

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Credit Card Rate Report Updated: September 23rd, 2020
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