Credit card balances declined for the first time in two months in November, the Federal Reserve said Thursday.
Revolving debt decreased at a 1.3 percent annual pace in November, down from a revised 2.0 percent increase in October, according to the Federal Reserve’s preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.Total consumer debt rose 5.1 percent in November to almost $3.30 trillion. Total consumer debt includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected out-of-the-ordinary fluctuations that may occur, such as back-to-school or holiday seasons.
The average interest rate on credit card accounts was 11.99 percent in November, according to the Fed report, slightly up from August’s 11.82 percent average, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were actually charged interest because they carried a balance was 13.68 percent, up from 13.18 percent in August.
Consumer spending continues to gain speed, up approximately $67.9 billion (0.6 percent) in November after a revised $49.8 billion (0.3 percent) increase in October, according to the Commerce Department.
Personal income is also seeing steady growth, especially after further upward revisions made to October estimates. Private wages and salaries increased $38.7 billion (0.4 percent) in November, compared to a revised $24.9 billion (0.3) increase in October.
Consumers did not save quite as much in November as they did in October, but the pace is still steady. Personal savings totaled $576.5 billion in November compared to the $601.7 billion saved in October, according to newly revised estimates.
These November spending figures are an indicator of more positive reports to come as the New Year begins, especially as low gas prices continue to take pressure off consumers’ wallets, said James Marple, senior economist with TD Bank.
“The momentum in consumer spending has not only continued into the fourth quarter, but accelerated,” he said in a research note. “The money consumers saved at the gas pumps is clearly finding its way to spending in other areas. With wage growth accelerating, this bodes well for the next year, where we look for spending growth to average around 3.0 percent.”
Employment figures point to continued growth
Despite decreasing credit card balances, increasing consumer spending numbers compounded with a variety of positive employment figures, indicating a potentially strong economic start to 2015.
“The job market continues to power forward,” said Mark Zandi, chief economist of Moody’s Analytics. “Businesses across all industries and sizes are adding to payrolls. At the current pace of job growth, the economy will be back to full employment by this time next year.”
U.S. nonfarm, private sector employers added 241,000 jobs in December, according to the ADP National Employment Report released Wednesday.
Additionally, fewer Americans applied for unemployment benefits last week, another sign of positive economic sentiments as employers add jobs and hang on to existing workers.
The Bureau of Labor Statistics December employment report will be released Friday and economists expect employers to have added approximately 240,000 jobs in December, according to a Business Insider economic report preview. Such numbers would add to the 321,000 jobs created in November and put total job growth near 3 million for the year.
Despite the strong employment reports, Federal officials have held off raising benchmark interest rates due to the sluggish pace of inflation and lack of significant wage growth. Following the Dec. 17 meeting of the Fed’s rate-setting committee, Fed Chair Janet Yellen’s comments alluded to a rate liftoff no sooner than April.
Bank card delinquencies up slightly
Overall consumer debt delinquencies continued to decline in last year’s third quarter, though credit card delinquency edged up, according to the American Bankers Association’s Consumer Credit Delinquency Bulletin.
“Strong economic growth has boosted job creation and supported income growth, which has made it easier for consumers to meet their financial obligations,” said ABA’s chief economist James Chessen in a news release.
For this report, ABA tracks eight closed-end installment loan and three open-end loan categories. Seven out of the 11 categories saw delinquency rate declines in the third quarter while three — bank-issued credit cards, mobile home loans and home equity lines of credit — saw increases.
The bank card delinquency ratio increased slightly in Q3 after two consecutive quarters of declines, rising to 2.51 percent of all accounts from 2.43 percent in Q2. However, this ratio is still well below the 15-year average of 3.77 percent and should not be a major concern, Chessen said.
“Bank card delinquencies have hovered near 15-year lows with only minor fluctuations over the past two years, and we expect that trend to continue,” he said.
The bank card delinquency rate is expected to decline as the economy continues its upward trend and consumer confidence improves. The Conference Board Consumer Confidence Index rose to its highest level since February 2008 — 92.6 — in December, up from 91.0 in November, indicating consumers are already feeling more optimistic about economy and their own financial well-being.
“While people are clearly ready to spend again as economic activity picks up, the overwhelming majority of consumers continue to keep debt at manageable levels,” he said. “Consumers are on surer financial footing, which bodes well for future delinquency rates.”