Research and Statistics

Fed: Card balances rose $4.8 billion in August


Revolving debt – chiefly credit card balances – grew at a 5.6 percent annual rate in the back-to-school shopping month, according to the Federal Reserve.

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Consumers’ credit card balances rose $4.8 billion in August, the back-to-school shopping month, according to the Federal Reserve’s monthly consumer credit report released Friday.

The jump followed a revised $1.37 billion increase in July.

Consumer revolving debt – which is chiefly made up of credit card balances – rose at a 5.6 percent annual rate, on a seasonally adjusted basis, to total $1.04 trillion. The August figures are preliminary and subject to revision.

Balances on cards were up 1.6 percent annualized the previous month, according to the seasonally adjusted figures.

Total consumer debt, which covers student loans and auto loans as well as card balances, rose by $20.1 billion to a total of $3.94 trillion – an annualized increase of 6.2 percent. The figure excludes mortgages and other loans secured by real estate.

Cardholders shouldering debt well

Card debt has climbed well beyond its pre-recession peak of $1.02 trillion set in 2008. But so far, consumers are carrying the burden without breaking a sweat.

The rate of delinquent credit card accounts issued by banks actually fell slightly in the second quarter of 2018 to below 3 percent of accounts, according to recent data from the American Bankers Association. That improvement followed a jump in delinquency in the first quarter.

“Overall, consumer financial health has been excellent,” ABA chief economist James Chessen said in announcing the results of the ABA Consumer Credit Delinquency Bulletin Oct. 4. A delinquent account is one that has missed a payment.

Cardholders’ good performance comes despite rising interest rates, which make it more expensive to carry a balance. Average APRs on accounts that charge interest have risen from 12.95 percent in 2013 to 15.54 percent in the second quarter of 2018, according to the Federal Reserve. In dollar terms, that means it costs $130 more per year to carry a typical $5,000 balance.

Banks’ tighter lending standards are helping keep delinquencies low. A survey of banks’ lending practices found they are significantly less likely to grant new cards or credit limit increases to subprime borrowers now than they were in 2005.

“Inflation is on target for now, and the question is, how much pressure is bubbling beneath the surface. [Low inflation so far] underpins our expectation that the Fed can continue its gradual pace of a hike a quarter over the next year.”

Economic strength brings healthy household budgets – and rising interest rates

The August card balances were announced the same day as a report of exceptional strength in the job market. The jobless rate in September fell to 3.7 percent, the Bureau of Labor Statistics reported – the lowest it’s been since 1969.

“Over the past 12 months, the U.S. economy has added an average of 214,000 jobs per month,” Regions Bank chief economist Richard Moody said in a research note. He called that “just plain nuts for this stage of an expansion.”

Plentiful jobs are giving consumers confidence to pull out their credit cards. But the strong economy will also make it increasingly expensive to carry a balance. Analysts expect the Fed to continue raising its benchmark rate – which quickly boosts APRs on variable rate credit cards – to keep inflation in check as the job market tightens.

“Inflation is on target for now, and the question is, how much pressure is bubbling beneath the surface,” TD Economics senior economist Leslie Preston said in a research note. Low inflation so far “underpins our expectation that the Fed can continue its gradual pace of a hike a quarter over the next year.” That means credit card APRs are on track to be 1 percentage point higher in 2019.


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