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Fed reports card balances rose by $8 billion in February

The ABA anticipates that consumer credit conditions will improve in the second quarter

Summary

The Fed’s G.19 report finds that card balances rose in February, along with total consumer debt outstanding. And the American Bankers Association sees quality and availability of consumer credit improving in the second quarter.

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Credit card balances rose in February, just weeks after a wave of stimulus payments likely helped consumers pay down debt in January.

Consumer revolving debt – which is mostly based on credit card balances – rose $8.1 billion on a seasonally adjusted basis in February to $974.4 billion, according to the Fed’s G. 19 consumer credit report released April 7.

In February, credit card balances gained 10.1% on an annualized basis, following January’s revised steep 10.6% decline and December’s 3.2% dip.

Card balances had been growing before the coronavirus impacted consumer spending and bank lending in 2020. They dipped below the $1 trillion mark last May, for the first time since September 2017.

Total consumer debt outstanding – which includes student loans and auto loans, as well as revolving debt – gained $27.6 billion to rise to $4.205 trillion in February, a 7.9% seasonally adjusted annualized rise.

The Fed also reported that average interest rates on all credit card accounts were at 14.75% in February, while rates on those accounts that carried a balance were at 15.9%.

See related:Average credit card interest rates

Credit conditions seen improving in second quarter

Economists at some large North American banks anticipate an improvement in consumer credit conditions over the second quarter, according to a report from the American Bankers Association.

“The latest round of federal stimulus, including another wave of economic impact payments, will provide more financial support to borrowers and lenders across the country,” said ABA senior economist Rob Strand. “As a result, we should see a further improvement in credit conditions.”

The headline credit index of the ABA’s credit conditions index (which also includes a consumer credit index component and a business credit index input) rose more than 34 points in the second quarter, its biggest ever rise in a quarter, the ABA said.

The consumer credit index component gained 37 points in the second quarter, which is its highest reading since the middle of 2014. Economists were optimistic about both the quality and availability of consumer credit. None of them expects consumer credit to deteriorate in the six months ahead.

“Overall, the outlook for the credit markets is quite strong,” Strand said, considering that all three components of the ABA’s credit conditions index are at their highest level in more than five years.

See related: Consumers still using stimulus checks to pay off credit card debt

Consumers anticipate improvement in household finances

Indeed, more consumers are looking forward to an improvement in their household finances over the next year, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations for February, released in March.

They were more optimistic about making their minimum debt payments, with the  average anticipated probability for missing a minimum debt payment in the coming three months decreasing to 10.1% in February, from January’s 10.5%. Their median expectation for growth in household income was 2.4%, below the year-ago level of 2.7%. They also had higher expectations for growth in household spending, anticipating it to grow 4.6%, at the median, up from January’s 4.2%.

Perceptions about changes in inflation in the year ahead were about steady, rising to 3.1% from 3%, which is its highest level since July 2014. However, median expectations for rise in gas prices were up 9.6%, a high for the survey, and expectations for rent growth were up 9%, also a high. The median expectation for earnings growth a year ahead is at 2.2%, led by those with more than a high school education. This had remained flat at 2% for the last seven months.

Respondents were also more optimistic on the labor market front, with reduced expectations that the unemployment rate a year ahead will be higher. And while the mean expected probability of losing a job in the next 12 months was up slightly, the average probability of leaving a job voluntarily was also up.

See related: How to get your stimulus check faster

U.S. employment numbers robust in March

The employment situation was robust in March, per the government’s jobs report. The economy added 916,000 jobs and the unemployment rate dipped to 6%.

“These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus pandemic. Job growth was widespread in March, led by gains in leisure and hospitality, public and private education, and construction,” the Bureau of Labor Statistics said.

The jobs added for January and February were also revised up.

In his daily e-mail commentary, Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted, “The economy is still down about 11 million jobs compared to what would have been expected if the pandemic hadn’t happened, and we expect perhaps half of those jobs to be recovered by mid-year. We expect payrolls to rise by well over 1 million in April, and then by 2 million-plus in May and June.”

Although average hourly earnings were down 0.1% in March,  this is mostly due to the return of customer service jobs, which tend to be lower paying.

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