Research and Statistics

Card debt falls in January


Card balances reversed direction and fell in January, as consumers got hit by harsh weather and expiring jobless benefits

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Americans cut their credit card debt slightly in January, as winter storms and expiring unemployment benefits contracted the openhanded spending of the month before.

Revolving debt fell at a seasonally adjusted annual pace of 0.3 percent in January, according to the Federal Reserve’s preliminary G.19 Consumer Credit report.

The shrinking debt load reversed course from a revised 4.3 percent increase in December. The Fed had initially estimated  that December’s revolving debt load leaped at a 7 percent rate, even after adjusting for seasonal spending.

January’s pullback came despite stronger-than-expected consumer spending. The 0.4 percent gain in personal consumption expenditures during the month was four times analysts’ consensus estimate.

However, “a lot of the strength in consumer spending came from utility spending,” said Scott Hoyt, senior director at Moody’s Analytics. “I don’t think a lot of that shows up on credit cards.” Spending on services, which includes utilities, saw its biggest monthly gain since mid-1998, as furnaces battled colder-than-usual temperatures in much of the nation, analysts said. Retail sales, which exclude utilities, moved the opposite direction in January, falling 0.4 percent.

The Fed’s measure of total short-term consumer debt rose 5.3 percent, including car loans and student loans as well as revolving debt.  Households had $3.1 trillion in short-term debt, of which $856.2 billion is revolving debt — chiefly credit card balances.

Wintry mix
Since Jan. 1, about 1.8 million Americans have stopped receiving monthly unemployment checks, after Congress decided not to renew the emergency extension of benefits, according to TD Economics. The resulting 25 percent drop in unemployment payments  “was the largest monthly decline in recorded history,” economist Thomas Feltmate said in a research note.

“That definitely contributed to the weakness in sales and consumer spending,” Hoyt said. “That money goes to folks who are going to spend it right away.”

The cutoff of benefits probably reduced credit card use by some households and increased it by others, Hoyt said. Although a drop in income would normally cause a drop in spending and card use, “maybe if you’ve got to buy the food somehow, you put it on cards,” Hoyt said. “You can make a case either way.”

In the longer run, returning health in the job market is making household budgets stronger. Businesses and government added 175,000 jobs in February, more than analysts had predicted, the government announced Friday. Active job seekers pushed the unemployment rate up fractionally to 6.7 percent, from 6.6 percent, but the economists called the growth in jobs encouraging. A year ago the jobless rate was 7.7 percent.

Families are gradually getting their financial footing after the Great Recession of  and the period of slow growth that followed, economists say. Lower debts, combined with rising incomes and a rebound in home values, have put households on their strongest financial foundation since the early 1980s, Federal Reserve Bank of New York Research Director James McAndrews said in an address Wednesday.

“The key development behind the firmer tone of consumer spending over the second half of 2013,” he said, “is the significant strengthening in household balance sheets.”

Appetites for debt vary widely by city, according to an analysis by the credit bureau Equifax. Consumer debt, including mortgages, leaped 5.9 percent in Houston during 2013, while at the other end of the spectrum  Miami-Fort Lauderdale saw a 3.3 percent decline, Equifax found.  Houston also had the largest gain for credit card debt, up 4.53 percent, while Detroit posted the smallest gain, at 0.37 percent.

See related:Household debt rise marks a ‘turning point’

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