Fed: Balances on cards rose $1.2 billion in July

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

 

Consumers’ credit card balances rose $1.2 billion in July, reversing a $1.17 billion decline the previous month, according to new and revised figures from the federal government released Monday.

Consumer revolving debt, which is mostly credit card balances, rose by 1.5 percent at an annual rate, on a seasonally adjusted basis, to total $1.037 trillion, per the Federal Reserve’s G.19 consumer credit report. The July figures are preliminary and subject to revision.

Balances on cards fell 1.4 percent annualized the previous month according to revised, seasonally adjusted figures.

Total consumer debt, which covers student loans and auto loans as well as card balances, rose by $16.6 billion to reach $3.918 trillion – an annualized increase of 5.1 percent. The figure excludes mortgages and other loans secured by real estate.

Strong economy tinged with bad news for cardholders

The consumer debt figures come at a time of strength in the labor market. The U.S. unemployment rate for July was 3.9 percent, according to the Bureau of Labor Statistics, and non-farm employers added 157,000 jobs. August unemployment was also 3.9 percent, and non-farm jobs increased by 201,000.

The economic strength has a downside for credit card users who carry a balance, however. The tight labor market means interest rates will go up to keep inflation in check, meaning higher APRs on adjustable rate cards.

“[F]or now the U.S. economy continues to boom, with little reason for the Fed to alter its interest rate normalization plans,” TD Economics economist Ksenia Bushemenva wrote in an analysis Sept. 7. Analysts expect the Fed to raise its benchmark federal funds rate by a quarter point during a meeting Sept. 26. Changes in the federal funds rate – which is expected to rise three times this year – are quickly reflected in credit card APRs.

Late payments on the rise

How are cardholders coping? Late payments on cards turned upward in 2017, but remain well below long-term averages, according to research from the Federal Reserve Bank of New York. Banks are tightening standards for new cards and holding off on credit limit increases, particularly for subprime applicants, according to a quarterly survey of senior loan officers.

Total balances in July were close to the pre-recession record set in December 2008, on an unadjusted basis. Card balances set a new post-recession peak in January. However, economists note that the economy and the number of cards in use has grown significantly in the past 10 years, making the current total balance less burdensome for consumers. Looking at all types of consumer debt, the average household debt service burden was about 10 percent of disposable income in the first quarter, Fed statistics show, versus nearly 13 percent in the fourth quarter of 2008.

See previous month consumer credit coverage


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Updated: 11-19-2018