Revolving debt balances increased yet again in November, the Federal Reserve said Friday.
Credit card balances surged in November, marking the ninth consecutive month of expanding credit card balances, the Federal Reserve said Friday. New consumer credit figures show consumers once again favored cards in November after holding back slightly in October.
Total revolving debt — primarily composed of credit card balances — reached $929.1 billion, an increase of $5.6 million (7.4 percent), according to the Federal Reserve’s monthly G.19 report on consumer credit. That’s the highest credit card debt has been since October 2009.
The spike comes after tepid growth in October 2015, when revolving debt balances increased only 0.1 percent. The new annualized growth rate is now 7.5 percent.
Additionally, the average interest rate on credit card accounts rose to 12.22 percent in November, according to the Fed report. This is a slight increase from August’s 12.10 percent average, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were actually charged interest because they carried a balance was 13.70 percent, down from 13.93 percent in August.
Overall, total consumer debt rose $13.9 billion in November to about $3.53 trillion — an annualized increase of 4.8 percent. This balance includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected fluctuations.
Labor market ends year on a high note
Reports of ongoing revolving debt growth follow news that the labor market strengthened further in December, setting the U.S. economy up for a strong start to 2016.
According to the Labor Department, 292,000 jobs were created in December, well above the predicted 200,000 jobs gain, according to a Bloomberg consensus report. Furthermore, November and October figures were upwardly revised to reflect 50,000 more jobs created than previously reported.
“I think the jobs report was quite remarkable,” said James Chessen, chief economist for the American Bankers Association. “It continues a string of months where growth was beyond 250,000 per month.”
Over the past three months, employment gains have averaged 284,000 each month.
Average hourly earnings for all employees changed little in December, technically down one cent to $25.24 following a revised 5-cent gain in November. While this could have been better, it’s not something to dwell on, according to Chessen.
“At some point in this next year I think every economic model is showing inflation rising and further wage growth,” he said.
Over the year, average hourly earnings have increased 2.5 percent and the unemployment rate remains at 5 percent.
More rate hikes?
The latest employment report reinforces the Federal Reserve’s recent decision to raise benchmark interest rates, which will increase all variable APRs by .25 percent. Going forward, the Fed will closely watch the labor market to help determine further actions, according to Pantheon Macroeconomics 2016 Outlook report.
“The pace of the Fed’s tightening will be determined largely by developments in the labor market, rather than GDP growth or the current inflation rate,” chief economist Ian Sheperdson wrote in the outlook report.
The Fed has to review the economy broadly, and to do so may focus on the unemployment rate, which is still the lowest since April 2008, based on Bureau of Labor Statistics historical data. Consistent wage growth is another good indication that further interest rate increases are on the horizon, the report explains. “We expect the Fed to hike in March, June, and then each meeting in the second half, ending the year at 1.875 percent,” wrote Sheperdson.
Other analysts have expressed similar, but slightly more conservative, sentiments about the number of rate hikes expected in 2016.
“My own feeling is they are going to take rates up very slowly,” said Chessen. “I think two is maybe the best we can hope for and maybe there will be a third, but again, the wage growth continues to make them a bit crazy and they keep looking for signs that there is inflationary pressure. Unless they see inflation rise and ongoing pressure in the labor market, I think they will be hesitant.”
Consumers may come out on top
Further rate hikes may slowly increase the cost of borrowing for balance-carrying consumers, but for credit card users who pay their balances every month, rising rates could bring more opportunities to earn rewards, according to a report from market research group Credit Suisse.
Card issuers are poised to benefit financially from ongoing interest rate hikes and Credit Suisse predicts that income may be used to attract more balance-carrying cardholders to reward programs, according to a research report sent to clients.
Regardless of how the Fed moves interest rates in the coming months, if the labor market remains strong, many consumers should be able to manage any growing credit card balances well.
“Credit card delinquency rates are tracking at historic lows,” Chessen added. “Rates have been flat as a pancake over the past couple of years, so my sense is strong job growth will also help keep those rates low.”