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Credit card balances dipped in March, Fed’s G.19 report finds

The ABA’s fourth quarter credit card monitor notes an uptick in fourth quarter credit card use

Summary

Consumers have benefited from continued job growth and wage growth, but a “moderate” number of banks tightened credit card lending standards in the first quarter and credit card balance growth tapered off in March.

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Credit card balances fell in March, according to the Federal Reserve, though consumers continue to benefit from job growth and wage increases.

Consumer revolving debt – which is mostly based on credit card balances – declined by $2.2 billion on a seasonally adjusted basis to $1.0572 trillion, the Federal Reserve reported in its G.19 consumer credit report. Its annualized growth rate was down by 2.5 percent.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up about $11 billion to $4.052 trillion, making for an annualized growth rate of 3.1 percent.

For the first quarter, the Fed reports revolving credit rose at an annual rate of 1.5 percent, seasonally adjusted, while non-revolving credit gained 5.25 percent.

See related:  Fed: Card balances rose in February

Consumers get a boost from job growth

For April, the U.S. economy added 263,000 jobs, with the unemployment rate dipping to 3.6 percent, its lowest level since December 1969, the federal government reported.

It’s likely government jobs got a bit of a boost with the hiring related to the 2020 census, but the private sector growth continues strong too, with the addition of 236,000 jobs, Pantheon’s chief economist Ian Shepherdson noted in a May 3 e-mail. He doesn’t expect employment growth can continue at this pace.

“What can continue, though, is the downshift in unemployment, and that means more power to scarce labor and faster wage gains in due course,” Shepherdson wrote. “No immediate policy implications, but it’s not hard to imagine that a run of reports like this would eventually prompt something of a rethink at the Fed.”

Meanwhile, wages were up 0.2 percent over the month, and 3.2 percent over the year. Grant Thornton Chief Economist Diane Swonk noted in a May 3 article that much of the wage growth is from the rise in minimum wages at state and local levels.

“What has been surprising is the lack of ‘trickle up’ we have seen from those gains,” Swonk said. “Managers of low-wage workers typically get paid more as their employees’ wages rise.”

While big retailers have raised pay for entry-level workers, this hasn’t benefited their managerial staff.

“This represents a further squeeze on the middle class,” she says.

Credit card debt low relative to income

Additionally, the American Bankers Association reports  that credit card use continued to grow in the fourth quarter of 2018,  The banking industry trade group’s quarterly credit card market monitor finds that “super-prime” consumers hiked up purchase volumes by 2.7 percent, while the “prime” group’s purchase volumes rose 1.4 percent. However, the “subprime” group saw purchase volume taper off  0.9 percent, compared to the third quarter.

Open credit card accounts were up 1.5 percent overall compared to a year ago, mostly thanks to the “super-prime” group of consumers. And while credit card lines also grew, they are still 10-25 percent below the highs seen in the recession.

“Consumers continue to exhibit good payment behavior overall, and issuers are responding by slowly increasing credit lines,” ABA Chief Economist James Chessen said in a news release. “At the same time, issuers are slowing the pace of new account generation, particularly for subprime and prime borrowers, as they continue to closely monitor economic trends and consumers’ financial health.”

ABA data also show the effective finance charge yield, or interest payments relative to the total outstanding market credit, rose 0.24 percentage points to 13.04 percent in the fourth quarter, with the Federal Reserve targeting higher rates in December. Still, ABA sees the level of credit card debt as very low relative to income.

Fed expects economic growth to continue

The Federal Reserve said in its April senior loan officer opinion survey of bank lending practices, “A moderate net percentage of banks reported tightening lending standards on credit card loans in the first quarter, while all terms associated with credit cards were basically unchanged on net.”

In its May meeting, the FOMC did not take action on interest rates and continued to maintain a patient stance. Fed Chair Jerome Powell expects economic growth to continue, and he noted that households are in a good place from a debt standpoint.

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