Card balances fell in March, according to the Federal Reserve
Consumer revolving debt, which is mostly credit card balances, dropped by $2.6 billion on a seasonally adjusted basis to $1.027 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was -3 percent.
March’s slump marks two straight months of revolving debt decreases, according to revised data from the Fed. The growth of revolving debt slowed somewhat in the beginning of 2018, perhaps due to a post-holiday spending reduction and consumers paying down their card balances. Revolving debt grew by only $800 million in January, followed by a $500 million drop in February. Card balances set a new record for the first time in nine years in November 2017, when they reached $1.023 trillion.
Total consumer debt, which accounts for student and car loans in addition to card balances, increased by $11.7 billion to $3.875 trillion – an annualized growth rate of 3.6 percent.
Student loan debt has increased by $30.4 billion to $1.52 trillion since the Fed last reported it in December. Car loan balances have increased by $9.1 billion to $1.12 trillion since December.
Cardholders boosting issuers’ profits
Despite slow growth in revolving card balances to start the year, credit card users continue to swipe and dip with confidence. Card companies such as Visa, Mastercard and American Express reported blockbuster first-quarter profits driven by consumer spending.
Additionally, the credit card market showed sustained growth in the prior quarter, according to new data from the American Bankers Association. Monthly purchase volumes grew 3.9 percent for prime accounts and 5.1 percent for super-prime accounts.
Meanwhile, the share of dormant card accounts fell 0.4 percent, while revolvers (consumers who carry balances) rose by 0.3 percent and transactors (those who pay their balances in full) increased by 0.4 percent. ABA also said average credit lines for prime and subprime consumers rose to levels not seen since 2010, and super-prime consumers had their highest credit lines in 10 years.
“The economy is performing well, and consumers are benefitting,” ABA’s Jess Sharp said in a press release. “The strong labor market is helping to drive consumer confidence levels to near all-time highs, and card issuers are responding by judiciously expanding credit access to new and existing customers.”
Consumers also continued to see gains in their paychecks in March. The Commerce Department reported that personal incomes grew by 0.3 percent, driven by increases in wages and salaries, Social Security benefits and dividend income. Spending increased by 0.4 percent as consumers ramped up purchases of recreational vehicles and spent more on gas and electricity in March.
June rate hike could be second of three expected this year
The Fed opted not to raise interest rates at its May Federal Open Market Committee (FOMC) meeting, but its members sounded a relatively hawkish note on the outlook for inflation. In a May 2 statement, the FOMC said inflation would run “near the committee’s symmetric 2 percent objective over the medium term.”
Analysts were quick to point out that the Fed’s use of the word “symmetric” suggests it believes inflation could soon rise above its 2 percent target.
“Use of \u2018symmetric’ is key, as the central bank will not panic if inflation modestly overshoots its 2 percent objective temporarily,” Moody’s economist Ryan Sweet said in a May 2 report.
Meanwhile, the U.S. job market showed further signs of tightening in April, as nonfarm payrolls grew by 164,000. Wage growth slowed a bit – increasing by just 0.15 percent after a 2 percent jump the previous month – but the unemployment rate ticked down to 3.9 percent.
TD Bank Senior Economist Fotios Raptis predicted two more quarter-point rate hikes in 2018. The next rate rise seems likely to come in June.
“Although the FOMC decision this week was largely uneventful, the focus of the committee is likely to remain on the evolution of wages and prices,” Raptis wrote. “There are broad signs that both are heating up, and a stimulus-fueled economy should only encourage further firming in these areas.”
Consumers who carry balances on their credit cards may already be feeling the heat from the recent wave of rate hikes that began in December 2015. Fortunately, many card issuers may be willing to reduce rates for cardholders in good standing who ask for it.