Fed: Card balances surged by $11 billion in November

Credit card balances continued their march toward $1 trillion in November, according to a federal report released on Monday.

Consumer revolving debt, primarily credit card balances, increased by $11 billion on a seasonally adjusted basis to $992.4 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 13.5 percent.

November’s card balances were the highest since February 2009, when they reached $998 billion. Cardholders rang up $54.5 billion in new credit card debt in the first 11 months of 2016, and card balances could reach $1 trillion this month.  

Total consumer debt – auto and student loans as well as credit cards – reached $3.75 trillion in November, an annualized rate of 8 percent.

November’s increase follows a $2.4 billion bounce reported in October.

The average interest rate on credit card accounts was 12.41 percent in November, according to the Fed report, down from a 12.51 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 13.61 percent, down from 13.76 percent in August.

Solid foundation for more spending
Consumer spending rose by 0.2 percent in November, despite no change in personal incomes, according to the Bureau of Economic Analysis. TD Economics Senior Economist Leslie Preston said in a Dec. 22 research note higher spending on services likely reflected greater energy consumption amid more seasonal temperatures.

Preston also noted that consumer savings trended down throughout 2016, returning to levels last seen prior to the oil price collapse. Spending is likely to remain steady, however, as the economy continues to improve.

“Consumers have been working down their savings buffers accumulated since the fall in energy prices, but the savings rate is not unduly low,” Preston wrote. “We expect income growth to pick up in the months ahead reflecting robust wage and employment gains, providing a solid foundation for consumer spending.”

Meanwhile, cardholders went into the new year resolving to better manage their credit. In a survey conducted by Experian and Edelman Intelligence, four of the six most common personal finance resolutions were related to credit cards. Twenty-five percent said they would pay off a credit card, 20 percent resolve to pay off their balances each month, 18 percent intend to pay credit card debt on time, and another 18 percent said they wouldn’t open any new cards.

A new rate hike by St. Patrick’s Day?
Many consumers will be forced to tighten credit card spending in 2017, given that the Federal Reserve raised interest rates by 0.25 percent in December. Many issuers have responded by raising APRs for variable rate cards. Reflecting those increases, the national average APR on new card offers rose to a record high of 15.36 percent last week, according to the CreditCards.com Weekly Credit Card Rate Report. The average APR has increased each week following the Fed’s last open marketing committee meeting Dec. 13-14, when it announced the rate hike.

Analysts believe more rate increases are to come this year, particularly given continuous steady improvement in the U.S. economy. Job growth slowed in December –the 156,000 jobs added were less than the consensus estimate of 175,000. Wages, however, grew by 2.9 percent year-over-year – the biggest gain since June 2009. The unemployment rate ticked up by one-tenth of a percentage point to 4.7 percent between November and December.

Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a Jan. 6 research note the jobless rate will likely sink below 4.5 percent if monthly job gains bounce back to the 200,000 mark.

“The shortfall in payrolls against consensus is trivial, and is mostly accounted for by an unexpected 16,000 drop in temp jobs,” Shepherdson wrote. “This could easily be a holiday seasonal adjustment issue, given that most of the leading indicators of employment growth have improved recently.”

Shepherdson echoed the sentiments of many analysts who predict another quarter-point rate increase to be announced at the March 15-16 Federal Open Market Committee meeting. A 0.25 percent increase costs the average cardholder with a balance of $5,551 about $1.15 per month in interest. The Fed aims to gradually increase the federal funds rate from its current range of 0.50 percent-0.75 percent to about 3 percent.

Consumers should have little trouble absorbing a wave of rate hikes and fulfilling their New Year’s credit card resolutions if employment and earnings trends stay positive. 

See related: Fed: Card balances up $2.3 billion in October

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Updated: 12-13-2018