Research and Statistics

Fed’s G.19 report shows card debt rose sharply in June


Credit card activity continued to surge in June, according to new figures released by federal banking regulators. Analysts say consumers are relying on credit cards for increasingly costly expenses as other lines of credit remain unavailable.

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Credit card activity continued to surge in June, according to new figures released by federal banking regulators. Analysts say consumers are relying on credit cards for increasingly costly expenses as other lines of credit remain unavailable.

Credit card debt up sharply in June

(Click on graph image to enlarge.)
Source: Federal Reserve G.19 report on consumer credit for June 2008

The Federal Reserve’s latest G.19 report shows revolving credit (of which about 98 percent is comprised of credit card debt) rose at an annual rate of 6.8 percent in June. This builds on a gain of 7.6 percent in May, which was recently revised from an originally announced increase of 7 percent. With the latest increase, revolving credit advanced to $968.4 billion from $962.9 billion the month before.

Overall consumer credit (revolving and nonrevolving) leaped 6.7 percent in June to $2.59 trillion, following an increase of 3.8 percent the prior month. May’s rise was previously estimated at 3.6 percent.

As various costs are lifted by the price of oil, credit cards remain a top payment choice for many consumers. “When you reach into your pocket, your instinct is now to use your credit card because it is a higher ticket price,” says Elizabeth Rowe, director of banking advisory services with Mercator Advisory Group in Maynard, Mass.

Rowe explains that as prices surpass a psychological threshold, consumers will choose to pay with credit cards, rather than debit cards or other payment options. “The average ticket price for a credit card purchase is significantly higher than a debit card purchase,” she says.

That may be true, says Susan Menke, senior financial services analyst Mintel International in Chicago, but the use of credit cards may be so culturally ingrained that even economic woes have little impact on the decision to charge. “People are just used to using their credit cards. It’s the culture that we’re living in and I don’t know if you can eliminate that completely,” Menke says. “People are still spending discretionarily, they’re just spending less.”

A look at the latest quarterly numbers bears this out. For example, the revolving credit growth of 5 percent in the second quarter represents a slowdown from the more robust 6.8 percent pace set in the first three months of this year.

That said, people are definitely still spending, and Rowe predicts banks will start lending again. “It used to be a game they were pretty good at, so they can’t stay on the bench forever,” she says. That means continuing expansion in the revolving credit data. “I would be surprised if it doesn’t continue to go up for another two or three quarters,” Rowe says.

See related:Fed’s G.19 report shows credit card use rebounded in May

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