Fed: Card balances rose $1.9 billion in March

Brady Porche
Managing Editor
Personal finance journalist with an eye for industry news


Credit card balances continued to flirt with the $1 trillion mark in March, according to a federal report released on Friday.

Consumer revolving debt, which consists mostly of credit card balances, increased by $1.9 billion on a seasonally adjusted basis to $999.8 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 2.4 percent.

The Fed reported last December that card balances eclipsed $1 trillion for the first time since the Great Recession. Revised data show they fell back to $996.2 billion in January but grew to $997.9 billion in February.

March’s card balances were the highest since January 2009 — right before the trough of the Great Recession — when they reached $1.01 trillion. Americans set a record for revolving debt in April 2008, when they rang up $1.02 trillion in card balances.

Total consumer debt, which encompasses student and auto loans in addition to card debt, increased to $3.8 trillion in March, an annualized rate of 5.2 percent. Student loan debt has risen by $32 billion to $1.44 trillion since the Fed last reported on it in December. Auto loans have increased by $8.2 billion to $1.12 trillion since December.  

Storm clouds on the horizon?
There was cause for concern over the state of consumer credit as card balances neared $1 trillion. Several card issuers saw higher charge-offs and set aside more money for credit losses in the first quarter, despite continued health in the U.S. economy. Both Capital One and Synchrony Financial raised their short-term expectations for net charge-offs — the amount of written-off debt that remains after part of it is recovered from customers.

Christopher Donat, an equities research analyst at Sandler O’Neill who covers Capital One, said the firms’ relatively high exposure to subprime borrowers may be to blame. He also noted that issuers have begun to see charge-off recoveries dwindle, perhaps because fewer consumers are still paying off old debts incurred during the Great Recession.

“My view is that we might see net charge-offs for credit cards grind higher from the levels we’ve seen, but I don’t think we’re at an inflection point,” Donat said. “I don’t think we’re going back to the same world we were in before the financial crisis.”  

Meanwhile, the credit card market continues to grow. The American Bankers Association last month reported the number of new accounts grew 9.7 percent year-over-year in the fourth quarter of 2016. Consumers had slightly more card debt outstanding as a share of their disposable income and saw higher finance charges due to recent rate hikes. However, both measures remain well below Great Recession levels.  

Steady income growth could offset higher card debt and interest charges for consumers. Real income growth — adjusted for inflation and removing taxes — grew by 0.5 percent in March, according to government data. TD Bank Senior Economist James Marple said in a May 1 research note the robust income growth could fuel higher consumer spending — a strong economic driver — in the months ahead.

Additionally, job gains recovered in April after a brief slowdown a month earlier. The U.S. economy added 211,000 jobs last month, up from a 79,000-job increase in March. The unemployment rate fell to 4.4 percent and wages grew by 2.5 percent year-over-year.

Fed shrugs off slower GDP growth
While incomes rose in March, inflation shrank to 1.8 percent, down from 2.1 percent in February. Marple said it could give the Fed some pause as it decides when to hike interest rates again. The Fed opted to stand pat on rates at its May meeting earlier this week.

“The momentum of the past few months was completely unwound in March,” Marple wrote. “Should it continue, it may also jeopardize plans for any additional rate hikes later in the year.”

Some observers also feared U.S GDP growth of 0.7 percent in the first quarter could delay another rate increase. But Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a May 3 research note the Fed’s latest post-meeting statement indicates it didn’t take the slowdown seriously, and so a quarter-point rate hike in June is likely. 

“They have not changed their view that the economy can take a ‘gradual’ increase in rates, which will be needed to prevent an overshoot of the inflation target,” Shepherdson wrote.

Credit card interest rates have risen steadily since December. Average APRs swelled to an all-time high of 15.80 percent this week, according to CreditCards.com’s Weekly Credit Card Rate Report. A June rate hike will drive the cost of carrying a balance on a card even further. 

See related: Fed makes it official: Card balances reach $1 trillion

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Updated: 12-12-2018