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Card balances swelled in November, per Fed report

Consumers are less optimistic about their access to credit

Summary

Credit card balances rose a whopping 23% in November, and total consumer credit also rose 11%, as consumers continued to spend.

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Credit card balances continued their upward march in November, as consumers continued to spend at a much faster pace than in the previous couple months.

Consumer revolving debt – mostly based on credit card balances – gained $19.8 billion on a seasonally adjusted basis in November, rising to $1.037 trillion, according to the Fed’s G. 19 consumer credit report released Jan. 7.

In November, card balances gained a whopping 23.4% on an annualized basis, following October’s 7.8% gain and September’s 11.7% rise. Card balances are now swelling again, after faltering during the pandemic.

Total consumer debt outstanding – which includes student and auto loans, as well as revolving debt – gained $39.9 billion to touch $4.41 trillion in November, an 11% seasonally adjusted annualized rise.

The Fed also reports that interest rates on credit card accounts dropped to 14.51% for the fourth quarter, from 14.54% for the third quarter. For card accounts carrying balances, interest rates were at 16.44%, also down from the third quarter’s 17.13%.

Consumers more optimistic about making minimum payments

Respondents to the Federal Reserve Bank of New York’s Survey of Consumer Expectations for November saw their probability of missing a minimum debt payment drop 1.1 percentage points, on average, to 10%.

However, they perceived access to credit as being more difficult compared to a year ago. They were also less optimistic about credit availability in the coming year. More respondents were also of the view that their household financial situation was worse than it was a year ago. And fewer of them expected the situation to improve in the coming year.

They expect growth in their household income to drop 0.1 percentage point, at the median, to 3.2%, while their anticipation for spending growth rose to 5.7%, a high for the survey.

On the inflation front, they expect, at the median, that inflation will rise to 6% in the year ahead, up from 5.7% in October. In the medium term, though, their inflation expectations dipped to 4% from 4.2%.

Labor market pessimism

The New York Fed survey also found respondents to be more pessimistic on the labor market front. For one, they expect their earnings to grow 2.8%, at the median, a drop of 0.2 percentage points. Those with household incomes below $50,000 were less optimistic.

Mean expectations that unemployment will be higher in the year ahead rose 0.6 percentage point to 36%. The perceived probability of losing their job in the coming year was also up to 13%. And they were less optimistic about landing a new job if they did lose their current one. However, the probability of voluntarily quitting their current job also rose.

Jobs report below market expectations

In its employment situation report for December, the government reports that the U.S economy added 199,000 jobs for the month. This falls short of consensus expectations for 450,000 jobs, Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted in his Jan. 7 email commentary. Job gains for October and November were revised up, however, resulting in an additional 141,000 jobs for those months.

The unemployment rate dropped to 3.9% as the leisure and hospitality sector, among others, continued to add jobs. While the labor participation rate (a measure of those of working age who are either employed or actively looking for work) was practically unchanged at 61.9%, it remains below its pre-pandemic peak.

According to a blog post by Diane Swonk, chief economist at Grant Thornton: “The December shortfall in employment should be seen as more reflective of labor shortages than a slowdown in hiring, given the drop in unemployment and surge in wages. That said, those gains could be rapidly reversed in January in response to the spread of Omicron.”

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