Research and Statistics

Fed: Card balances fell by $300 million in September


Credit card balances decreased in September, according to a federal government report released Tuesday.

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Credit card balances decreased in September, according to a federal government report released Tuesday.

Consumer revolving debt, which is mostly credit card balances, fell by $312 million on a seasonally adjusted basis to $1.041 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was -0.4 percent.

Revolving debt growth has generally been slow this year. Substantial increases in May ($8.4 billion) and August ($4.6 billion, after revisions) each followed two-month periods in which card balances slightly fell and then ticked upward again. But revolving debt still stands at a much higher level than the pre-recession peak of $1.02 trillion reached in April 2008.

Total consumer debt, which includes student and car loans in addition to card balances, increased by $11 billion to $3.95 trillion – an annualized growth rate of 3.3 percent.

Student loan debt has increased by $6.2 billion to $1.56 trillion since the Fed last reported it in June. Auto loan balances have increased by $18.5 billion to $1.14 trillion since June.

See related: Fed: Card balances rose in August

More consumers pay balances in full, but many fear missing a payment

Despite the overall steady growth in revolving debt, a smaller proportion of consumers are carrying card balances over from month to month, according to data from the American Bankers Association (ABA).

ABA said in an Oct. 25 report the share of transactors – cardholders who pay their balances in full each month – increased 1 percentage point to 30.4 percent in the second quarter of this year. The association said it was the highest reported percentage of transactors since it began tracking the data 10 years ago. The share of revolvers fell by the same amount, to 43.8 percent.

ABA also reported that card debt outstanding as a share of disposable income rose to 5.36 in the second quarter, though it remained well below pre-recession levels. However, an October report by the Fed revealed many consumers are concerned they won’t be able to meet their debt payment obligations in the near term.

The New York Fed’s latest Survey of Consumer Expectations showed the average perceived probability of missing a minimum debt payment increased nearly a full percentage point to 13.7 percent in September – the highest level since January 2017.

Jobs bounce back after storms; December rate hike likely

The U.S. economy continues to hum along, which likely means the Fed will continue its pattern of periodic interest rate hikes into 2019. The federal government said in a Nov. 2 report 250,000 new jobs were added in October – a drastic improvement over the 118,000 gain in September, a number held down by Hurricane Florence.

Pantheon Macroeconomics senior economist Ian Shepherdson noted in a Nov. 2 email the October job numbers surpassed analysts’ consensus estimate of 200,000.

“This looks great, but it’s impossible to know whether the overshoot in consensus is due to an uptick in the trend, or the return of people who dropped off payrolls after Hurricane Florence, or a smaller-than-expected hit from Hurricane Michael \u2026 or just regular noise,” Shepherdson wrote.

Meanwhile, the unemployment rate remained at 3.7 percent, and average hourly earnings rose 0.2 percent month-over-month.

“There is little doubt that the full employment half of the Fed’s dual mandate is right on track,” Leslie Preston, senior economist at TD Bank, wrote in a Nov. 2 report. “The October employment report is consistent with another rate hike in December.”

The Fed has raised its federal funds rate by a quarter of a percentage point eight times since December 2015, and credit card issuers have largely increased APRs in lockstep. The average median APR on new credit card accounts is now higher than 20 percent, according to the Weekly Credit Card Rate Report.

The steady rise in interest rates means even cardholders with excellent credit could be subject to APRs that were once reserved for riskier consumers. With APRs set to climb even higher in the months ahead, it’s critical to pay balances in full each month – the only surefire way to avoid interest charges while regularly paying with plastic.

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