Fed: Card balances fell by $100 million in June
Focusing on credit scores and what consumers can do to improve them
Credit card balances fell slightly in June, according to a federal government report released Tuesday.
Consumer revolving debt, which is mostly credit card balances, decreased by $100 million on a seasonally adjusted basis to $1.038.8 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was -0.2 percent.
Growth in credit card balances hit a lull in the first four months of this year, but it came roaring back in May. Last month, the Fed reported that card balances had grown by 11.4 percent in May, just two months after they fell – the first decrease in revolving balances since December 2015. Despite the June decrease, revolving debt could hit the $1.1 trillion mark for the first time before year’s end.
Total consumer debt, which covers student and auto loans as well as card balances, increased by $10.2 billion to $3.91 trillion – an annualized growth rate of 3.1 percent.
Student loan debt has increased by $7.8 billion to $1.53 trillion since the Fed last reported it in March. Car loan balances have increased by $17.7 billion to $1.13 trillion since March.
Despite low card debt burden, late payments rose in the first quarter
Consumers saw their incomes continue to rise in June, and they kept spending at a steady clip. Personal incomes rose by 0.4 percent in June, following 0.4 percent growth in May and a 0.3 percent increase in April, according to data from the Commerce Department. And personal spending grew by 0.4 percent – the fourth consecutive month of increases.
Despite steady growth in card balances, consumers aren’t letting credit card debt pile up. Data from the American Bankers Association showed credit card debt as a share of disposable income ticked downward in the first quarter of this year, and remains near post-recession lows.
However, late payments on bank-issued cards rose in the first quarter, according to a separate ABA report released last month. ABA Chief Economist James Chessen said in a news release the uptick in delinquencies could be attributed to moderate revolving credit growth during that time period.
“Bank card delinquencies have been near historical lows for five years as consumers have done a great job managing their levels of debt,” he said.
See related: Fed: Card balances surged to a new record in May
Fed stands pat in July, but new rate hike expected in September
The Fed opted not to raise its benchmark interest rate during last month’s Federal Open Market Committee meeting, but another rate hike could come soon. The U.S. GDP grew by 4.1 percent in the second quarter – the highest growth rate in four years – and unemployment ticked down to 3.9 percent in July.
The U.S. economy saw below average job growth in July, adding only 157,000 non-farm positions. But after 94 consecutive months of job gains, the sluggish July showing could be a factor of growing labor scarcity.
“After a couple of strong months for hiring, and the unemployment rate returning to its cycle low, there is really nothing to panic about a slowdown in hiring,” TD Bank Senior Economist Leslie Preston wrote in an Aug. 3 report. “With such a hot job market over a long period, it is becoming increasingly difficult to find workers to fill positions, which would be expected to result in a natural slowing in monthly job gains.”
The Fed is sticking to a gradual pace of rate hikes, and many analysts believe the next increase will come next month.
“Unless the data over the next few weeks take a sudden, serious turn for the worse, the Fed will hike again next month,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in an Aug. 3 e-mail.
The most recent rate hike in June helped push the average APR on new credit card accounts to just under 17 percent, according to the CreditCards.com Weekly Credit Card Rate Report.
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