Fed: February credit card balances down 5 percent
Statistics enthusiast focused on data-driven content
Credit card balances declined once again in February, the Federal Reserve said Tuesday.
Revolving debt decreased at a 5.0 percent annual pace in February, following a revised 1.4 percent annual decrease in January, according to the Federal Reserve's preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.
The trend of decreasing card balances may be in part due to a lack of high-interest investment options, as households look for a place to put extra money amid a strengthening economy, according to Bill Hampel, chief economist and policy officer for Credit Union National Association.
"As people start to accumulate a little extra funds, in the old days if their checking account was getting bigger, they would transfer some over to savings and then maybe from savings to CD, or something like that, but since those interest rates are so low right now there's not much value in that," he said. "Instead they are putting money toward credit card debt. I think that's been inhibiting revolving credit growth for a while and will continue until short-term interest rates rise."
The average interest rate on credit card accounts was 11.98 percent in February, according to the Fed report, slightly down from November's 11.99 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 13.53 percent, down from 13.68 percent in November.
Total revolving debt decreased slightly from $888.5 billion to $884.8 billion. Overall consumer debt rose about 0.4 percent in February to approximately $3.34 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, February's personal income and outlays report shows a slight uptick in consumer spending, rising $11.8 billion (0.1 percent) from January, according to the Commerce Department. However, in inflation-adjusted dollars, spending actually fell 0.1 in February -- the first drop in about year.
"Consumer spending is down a bit in the first quarter and we think that is weather related," Hampel said.
But, with spring in full swing and consumer sentiment at a 10-year high, according a University of Michigan survey of consumers, consumer credit use and spending is expected to increase more in the months to come.
Personal income is growing at a steady monthly rate of 0.4 percent this year, after revisions to January's estimates. Consumers also carried positive savings habits into the second month of the year. Personal savings totaled $768.6 in February compared to $728.7 billion in January, bumping the personal savings rate -- savings as a percentage of disposable income -- up to 5.8 percent from 5.5 percent.
Jobs report sends mixed growth signals
While the year's declining card balance trend continues, the most recent employment report shows growth may be slowing down in other areas of the economy.
According to March's employment report, only 126,000 jobs were created last month, much lower than earlier predictions of about 230,000, according to the Bloomberg consensus forecast. This is the fewest number of jobs created in a month since December 2013 and brings the 3-month job creation average down to 197,000, according to the Bureau of Labor Statistics.
"It was disappointing and surprising," Hampel said. "But, one month doesn't make a trend. And most of the other things we know about the economy suggest the labor market is improving and strengthening."
The overall unemployment rate holds steady at 5.5 percent and the number of unemployed persons still rests at 8.6 million. Additionally, average hourly earnings for all employees rose 7 cents last month to $24.86. Over the year, average earnings have increased by 2.1 percent.
While the March report was not entirely positive, the statistics weren't very surprising, according to James Marple, senior economist for TD Bank.
"It was bound to happen," he said in a research note sent to clients. "Job growth has been running at a stupendous pace in America over the last several months, increasingly out of tune with other economic indicators, which have pointed to a slowdown. The reckoning in March closes at least some of this gap."
Overall, it's too early to worry about how March's low job creation total will affect economic growth.
"Because the March number was so much lower than expectations and conflicts with other numbers we are getting, it wouldn't surprise me at all if two months from now that the March number is revised closer to 200,000 rather than 100,000," Hampel said.
interest rate hike time line
The March employment report gives the Federal Reserve more to think about at its next meeting regarding when to raise benchmark interest rates.
Federal Reserve chair Janet Yellen's most recent testimony emphasized that monetary policy decisions will depend on conditions in the labor market, but there is more to consider, like core inflation -- which measures long-term price changes by excluding items subject to volatile price swings, like food and energy -- which remains below the Fed's target 2.0 percent rate.
The word "patience" was removed from the Fed's most recent interest rate announcement, signaling that rates could be raised as early as June, but that time line may change.
"One month may not be enough to change the Fed's mind, but a slower pace of job growth certainly moves the risks in favor of a later rate hike," Marple said.
William Dudley, president of the Federal Reserve Bank of New York, was the first Fed official to comment on the matter since Friday's report and echoed similar sentiments, but believes this situation is temporary, brought on by factors such as the harsh winter and soft retail sales, according to his comments at a New Jersey event.
The exact time at which the central bank will start raising short-term rates remains uncertain, but rate increases are still expected later this year, according to Dudley.
"Unless the March number is dramatically revised upward and the next couple of months are incredibly strong, I think it's going to be pushed off until September," Hampel predicts.
- Average credit scores continue to climb, study finds – U.S. consumers managed to improve their credit scores overall in 2017, despite rising levels of debt, according to a study by Experian ...
- Poll: 2 in 3 U.S. adults with debt doubt they'll ever live debt-free – Among those who owe on credit cards, 31 million think that debt will be a companion the rest of their lives ...
- Fed: Consumers set all-time revolving debt record in November – Card balances surged to an all-time high in November, according to the Federal Reserve ...