Research and Statistics

Fed: January credit card balances down 1.6 percent


Credit card balances decreased at a 1.6 percent annual pace in January, the Federal Reserve said Friday

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Credit card balances declined in January, the Federal Reserve said Friday.

Revolving debt decreased at a 1.6 percent annual pace in January, reversing course sharply from December, when it increased a revised 8.4 percent, according to the Federal Reserve’s preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.

This recent decline in card balances may be attributed to changes in how consumers are spending their discretionary income. Less money spent at the gas pump can alleviate consumer’s need — or desire — to charge purchases and give them more flecibilty to pay down existing card debt.

“Lower gasoline prices–even if the money is spent elsewhere–have a potential to drag credit balances down,” said Scott Hoyt, senior economist for Moody’s Analytics.

Revolving debt fell from $889 billion to $887.9 billion. Overall consumer debt rose 4.2 percent in January to approximately $3.33 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 fluctuations, such as back-to-school or holiday seasons.

At face value, January’s report on overall consumer spending also shows a decline, down $18.9 billion (0.2 percent) from December, according to the Commerce Department. However, after taking inflation and taxes into account, real spending was up 0.3 percent in January, led by spending on services and durable goods. Personal income also continues to grow at a steady 0.3 percent rate.

“The gains have come from a near-perfect combination of accelerated job growth and plummeting energy prices,” James Marple, senior economist for TD Bank, said in a note sent to clients.

Such factors are translating to a higher savings rate among consumers. Personal savings totaled $728.5 billion in January compared to $659.6 billion in December, bumping the personal savings rate — savings as a percentage of disposable income — up to 5.5 percent from 5.0 percent.

“The rise in personal saving is a further reason for encouragement,” Marple said. “The saving rate has been fairly steady over the longer-term horizon and with the recent increase could even fall a little and still be healthy. This sets the stage for real spending growth to drive the American economy higher over the next year.”

As long as wage gains, lower fuel prices and the housing market continues to recover, the rate of personal spending is predicted to accelerate 3.5 percent in 2015, which would be the best growth seen in about a decade, according to a special report from TD Economics.

Jobs report gives Fed more to consider
While the year began with a drop in card balances, strong job market growth continues.

According to February’s employment report, 295,000 jobs were created last month, more than early predictions of about 235,000 according to the Bloomberg economist consensus forecast. Slight downward revisions to December and January’s employment figures bring the 3 month job creation average to about 288,000 per month.

Additionally, the overall unemployment rate decreased to 5.5 percent, marking a 1.2 percent decline for the year so far and the lowest unemployment rate since 2008, according to the U.S. Bureau of Labor Statistics.

“I think it’s important not to get too carried away with the drop in unemployment rate,” said Hoyt. “If you look at the unrounded numbers, it’s still very close to 5.6 percent.” Before February’s report, the seasonally adjusted unemployment rate rested near 5.6 percent for several months, according to the bureau’s data.

Employee wages remain a point of concern. Average hourly earnings for all employees rose only 3 cents last month to $24.78. Over the year, average hourly earnings have increased by 2.0 percent.

While such growth is enough to keep pace with inflation, it’s not enough draw back employees who previously left the labor force because the job market wasn’t strong enough.

“When you see wage growth, you tend to see a growth in participation as more people are drawn back into the labor force,” Hoyt said. “There’s not a lot of evidence of that happening right now.”

Approximately 732,000 discouraged workers remain in the labor market today. The civilian labor force participation rate has also changed little last year, resting at 62.8 percent in February after hovering between 62.7 and 62.9 percent since April 2014.

These employment statistics gives the Federal Reserve more to consider when deciding when and how to raise their benchmark interest rates, a matter that continues to be a point of debate.

“The decline in the unemployment rate clearly gives ammunition to those who want to see an early move by the Fed,” Hoyt said. “However, the lack of any sign of acceleration in wage growth makes it hard to argue that there is tightness in the labor market and point to a later rise in rates.”

“Patient” continues to be the key adjective describing the Fed’s approach to interest rate hikes thus far, but Federal Reserve Chair Janet Yellen’s semiannual monetary policy report to Congress revealed that approach may change if economic conditions continue to improve.

Any potential effects of the recent employment statistics on the Fed’s interest rate activities will be explored at the next Federal Open Market Committee meeting is scheduled for March 17-18.


See related:Debt collection complaints take aim at credit cards, Credit card interest rates stay at 14.87 percent

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