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Research and Statistics

Fed: Consumers set all-time revolving debt record in November


Card balances surged to an all-time high in November, according to the Federal Reserve

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Card balances surged to an all-time high in November, according to a federal government report released Monday.

Consumer revolving debt, which is mostly card balances, rose by $11.2 billion on a seasonally adjusted basis to $1.022 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 13.3 percent.

The revolving debt level passed the record high set in April 2008, when it reached $1.02 trillion. Revolving debt clocked in at over $1 trillion for the first time since the Great Recession last September.

Total consumer debt, which includes student and auto loans as well as revolving debt, increased by $27.9 billion to $3.83 trillion in November, an annualized growth rate of 8.8 percent.

The average interest rate on credit card accounts was 13.16 percent in November, according to the Fed report, up from a 13.08 percent average in August, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 14.99 percent, up from 14.87 percent in August.

November’s revolving debt increase follows a $8.3 billion rise in October.

Confident consumers spend more, save less

Consumer spending increased by 0.6 percent and personal income grew by 0.3 percent in November, according to a report from the Bureau of Economic Analysis. Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that the growth in spending is being funded by a fall in the saving rate, which is set to drop to 2.9 percent – its lowest level in a decade – in the fourth quarter of 2017.

“Very elevated consumer confidence makes people more comfortable saving less,” Shepherdson wrote in a Dec. 22 report. “But the saving rate can’t fall forever, so income growth needs to pick up if consumers are to continue spending at their recent pace.”

American consumers certainly didn’t tighten their purse strings during the holiday shopping season. Mastercard reported in December that holiday spending increased by 4.9 percent year-over-year in 2017, the largest increase in six years. Electronics and appliances saw their highest growth in 10 years (7.5 percent) and spending on home furniture and furnishings rose by 5.1 percent. Many retailers lured customers with promotions that began in early in the shopping seasons, Mastercard said.

“Overall, this year was a big win for retail,” Sarah Quinlan, senior vice president of market insights at Mastercard, said in a news release. “The strong U.S. economy was a contributing factor, but we also have to recognize that retailers who tried new strategies to engage holiday shoppers were the beneficiaries of this sales increase.”

Tax cuts could mean faster pace of rate hikes in 2018

The U.S. economy added 148,000 jobs in December, well under analysts’ expectations of 190,000 new positions. The unemployment rate held steady at 4.1 percent, and hourly wages grew 0.3 percent for the month and 2.5 percent year-over-year.

TD Bank Senior Economist James Marple said in a Jan. 5 report said a pace of 150,000 jobs per month would “still be sufficient” to hold down the unemployment rate.

“The headline may have disappointed, but 148,000 jobs is a respectable rate of job growth for an economy at this stage of the cycle,” Marple wrote. “As the labor market reaches full employment, analysts will have to adjust down the rate of job growth the economy can achieve.”

Sustained strength in the job market compelled the Fed to raise interest rates at its December meeting – the third rate hike of 2017. Several credit card issuers followed suit, and the average APR for new accounts is now at a record high of 16.32, according to the Weekly Credit Card Rate Report.

Many analysts expect more rate hikes in 2018, and the Fed indicated at its December meeting that new tax reform legislation could speed up the pace. President Trump signed the Tax Cuts and Jobs Act – which temporarily cuts individual tax rates and permanently lowers corporate tax rates – into law Dec. 22.

“The tax cuts should spur faster economic growth,” said Lynn Reaser, chief economist at Point Loma Nazarene University. “Because much of that may be due to stronger capital spending and hence boost the economy’s potential, inflationary pressures should be contained. Three or four rate hikes appear likely.”

See related: Fed: Card balances surged by $8.3 billion in October

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