Research and Statistics

Credit card balances rise in March


Consumers’ revolving debt load increased in March, ending two months of declining balances

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Balances on credit cards rose in March after two months of declines, the Federal Reserve said Thursday.

Revolving debt, which is primarily made up of credit card balances, rose $4.3 billion to $889.4 billion in March on a seasonally adjusted basis, according to the Fed’s preliminary G.19 release. That amounted to an annualized increase of 5.9 percent.

“Income growth was weak,” said Scott Hoyt, senior director of consumer economics for Moody’s Analytics. Personal income rose just 0.1 percent in March, which may have encouraged card use in order to temporarily boost spending power.

For the first quarter, revolving debt was essentially flat, falling a scant 0.3 percent annualized.

The Fed’s measure of all short-term consumer debt — which includes student loans, auto loans and other non-real estate debt as well as revolving debt– rose $20.5 billion to total $3.4 trillion, the biggest increase since last July, for an annualized rise of 7.4 percent. Auto sales were strong in March, giving a boost to nonrevolving debt as car buyers signed up for installment loans, Hoyt said.

Student loans outstanding totaled $1.36 trillion, up $29.7 billion from December, the most recent month on record. The Fed reports student loan debt at the end of each calendar quarter.

Economic backdrop
The March reading on consumer debt finished out a quarter that saw the economy grow at an unexpectedly slow pace. Gross domestic product expanded at a mere 0.2 percent annual rate in the first three months of the year, the Commerce Department said in its advance estimate, down from 2.2 percent in the fourth quarter of 2014.

However, the end of the first quarter saw measures of consumer economic activity rising, pointing to an upswing in the second quarter, forecasters said. Consumer spending rose $53.4 billion or 0.4 percent, the Commerce Department said, up from 0.2 percent in February. And retail sales grew 0.9 percent in March, reversing course from a 0.5 percent decline in February.

“The rebound [in retail sales] in March sets up the second quarter to look a lot better,” TD Economics Economist  Ksenia Bushmeneva said in a research note. “Consumer spending should continue to rise in the months ahead, supported by robust real income growth, high consumer confidence and improved household balance sheets.”

That outlook was buttressed by a stronger reading of consumers’ optimism for the future. The Fed’s March Survey of Consumer Expectations recorded a rebound in people’s expectations for rising home prices, higher earnings and more household spending, lifting a dour outlook in February.

Banks cautious
That mood shift could mean more consumers swiping their cards more often. Bankers, however, remain cautious about loosening their grip on credit. According to the Fed’s first-quarter survey of senior loan officers, standards for approving credit card applications were about flat with the previous period. The caution is paying off in low loss rates, which continued to stay low in March. Delinquencies on cards at the six largest issuers fell slightly to 1.54 percent of loans outstanding on average, according to Credit Suisse.

Banks have pulled back on credit card risk after the Great Recession and the Credit CARD Act of 2009. Revolving debt remains about $137 billion below its mid-2008 peak of slightly more than $1 trillion.

Whether that will hold true after interest rates begin to rise is an open question. The Fed’s rate-setting committee is expected to begin raising short-term rates by year end, a move that will raise the cost of carrying a balance on variable rate credit cards. The higher rates will make balances grow faster, unless consumers react by increasing their payments.

“There are offsetting influences,” Hoyt said. Outstanding balances will grow faster with higher rates, unless people boost their payments. “On the other hand, the mere fact it will cost people more [to use cards] may cause them to pull back.”


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