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Fed: Card balances fell by $2.4 billion in November

Consumers are optimistic about their economic prospects, according to a New York Fed survey

Summary

Consumer revolving debt – which is mostly based on credit card balances – declined $2.4 billion on a seasonally adjusted basis in November to $1.086 trillion, according to the Federal Reserve’s G.19 consumer credit report.

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Consumer revolving debt – which is mostly based on credit card balances – declined $2.4 billion on a seasonally adjusted basis in November to $1.086 trillion, according to the Federal Reserve’s G.19 consumer credit report. Card balances were off 2.75% on an annualized basis.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – continued its upward march, rising $12.5 billion to $4.176 trillion in November, making for an annualized growth rate of 3.6%.

The average interest rate on credit card accounts was 14.87% in November, dipping from a 15.10% average in August, the last time interest rates were reported in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 16.88%, down from 16.97% in August. It seems the Federal Reserve’s three cuts to its targeted interest rate in 2019 have trickled down to credit card borrowers.

See related: January spending freeze: How to save $1,000 and reset your spending habits

Consumers remain optimistic

In the meantime, consumers are optimistic about their economic prospects, according to the New York Fed’s survey of consumer expectations for November 2019.

The survey finds that the median expectation for growth in household income was 2.9% for November, up from a 2.8% average for the previous 12 months. More respondents also expected they would be better off financially in the future, and said they were better off than they were a year ago.

However, consumers have ramped down their expectations for spending, with median spending growth expectations dropping to 2.8%, following 3.3% for the October survey. This is also the lowest reading for this measure since September 2017.

Consumers are upbeat about their ability to make payments on debt, with only 11.3% on average expecting that they would miss a minimum debt payment, down from 11.6%.

See related: Poll: Only 7% of U.S. debtors expect to die in debt

Will inflation ramp up?

The Federal Reserve has been trying to get inflation to its 2% target, and it seems consumers’ expectations for inflation have crept up. At the median, they see inflation rising to 2.5% in the next three years. For a year ahead, their inflation expectations are at 2.4%. Expectations for price changes for gas, college education, medical care and rent in the next year were down, though.

The recent U.S. assassination of Iranian general Qassim Soleimani could have consequences for oil prices (and inflation) as well as geopolitical fallouts.

According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, in his Jan. 3 economics commentary, “Markets will remain defensive until Iran’s response to the Soleimani assassination becomes clear. We think full-scale war is unlikely, but Iran’s leadership has a long reach and a wide array of options.”

He anticipates that oil prices will trend higher in the following months as the markets remain on alert.

See related: Americans’ credit scores are at an eight-year high, Experian’s latest study shows

Positive outlook on labor market

The New York Fed survey reports that fewer consumers, at 34.6%, expect that the unemployment rate will be higher a year from now, down from the previous month’s 36.8%.

Consumers’ average expectation that they would lose their jobs in the next 12 months was down to 14.4%, from 14.8%. They were also more optimistic about their prospects for landing new jobs if they found themselves out of work. Fewer respondents expect to voluntarily leave their jobs, though.

According to a survey from ADP, the private sector gained 202,000 jobs in December. Diane Swonk, chief economist at GrantThornton, said in a blog post she anticipates the federal government’s Jan. 10 jobs report will show a gain of 150,000 jobs for December. She expects that the unemployment rate will hold steady at 3.5%.

“Participation in the labor market is expected to have risen slightly in December as more workers threw their hats in the ring,” Swonk wrote. “Tight labor market conditions are giving people who once gave up a second chance. Even people who were on disability are rejoining the labor market.”

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Published: January 8, 2020

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Credit Card Rate Report Updated: January 15th, 2020
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