Consumers added credit card debt in March amid growing incomes and an improving job climate
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Amid an improving job climate and expanding paychecks, credit card balances continued their modest upward trend in March, posting a gain for the third consecutive month.
Revolving debt, which is mainly made up of credit card balances, rose $TKTK million in March, following February’s revised $TKTKT increase, the U.S. Federal Reserve said in its latest G.19 consumer credit report.
The amount of outstanding revolving debt was $TKTK billion, compared with a revised $TKTK billion in February.
Overall consumer debt, including cards plus auto loans and student and other loans, rose $TKTK billion to reach $TKTK trillion in March, compared to $TKTK trillion in February.
The rise in revolving credit was overshadowed by other forms of consumer debt, continuing recent trends that have seen car loans and student loans outpace the riskier, unsecured category of credit card debt.
March’s consumer credit figures came as a gloomy February economic picture lightened. The Labor Department’s unemployment report for March initially said only an anemic 88,000 jobs were created, underperforming analysts’ expectations and raising concerns about a “spring slump” in the economy.
“It had looked as though March was a really lousy month,” said James Marple, senior economist at TD Economics.
It turned out the job market was actually better than initially reported. Revised figures released in April said the economy created 138,000 jobs in March. That, plus an upward revision for February and gains in April, helped pull down the current unemployment rate to 7.5 percent, beating most expectations.
Consumer spending rises
Not coincidentally, consumers continued to open their wallets wider in March, as spending rose $21 billion. That was a smaller increase than February’s $81.6 billion spending leap, but remained on the positive side of the ledger. Personal income was up $30.9 billion, or 0.2 percent for the month.
“I think we probably reached a bit of a high-water mark, at least in the growth rate of consumer spending in the near term,” Marple said. Among other factors, the sharp federal budget cuts known as the sequester will have a deepening impact on the paychecks of federal workers and government contractors as the year goes on.
Consumer confidence fell in March, as the negative news around the sequester helped sour the outlook. The wholesale cuts in federal spending created uncertainty about the future, the Conference Board said. Perhaps not surprisingly, confidence rebounded strongly in April, following the sunnier employment numbers.
“I’m in the camp that thinks the economy is stronger than it was portrayed,” said Michael Walden, professor of economics at North Carolina State University. “I think this is going to be the year of the return of the consumer.”
With the job market improving, households will ease back into major purchases that have been put on hold for years, he said. As time goes on, the replacement of a tired refrigerator or air conditioner graduates from a desire to a necessity and inserts itself into the household budget.
“I think we’ll see consumers begin to replace durable goods, all of which are heavily aged,” he said. “All of this translates into more borrowing.”
Demand for credit grows
Indeed, consumer demand for plastic is outpacing lenders’ willingness to give it. According to the Federal Reserve’s [%Link?type=article&id=6680&text=”survey of senior loan officers”%], 18 percent saw stronger demand for credit cards during the first quarter, while only about 7 percent said they had eased their standards for granting new cards or higher credit limits. The results suggest that the anemic growth in card balances would be stronger if card issuers had not clamped down quite so tightly on new accounts and credit limits.
Rates on new credit card offers are hovering at just under 15 percent, according to the CreditCards.com weekly rate report. The review of 100 cards found an average APR of 14.93 percent, compared to 15.01 percent six months ago.
See related:Fed: Card balances rise in February, text, term