Research and Statistics

Fed: April credit card balances shoot up


Credit card balances shot up sharply in April, the Federal Reserve said Friday

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Credit card balances shot up in April, the Federal Reserve said Friday.

The nation’s revolving debt balance — primarily composed of credit card balances — increased to $899.5 billion in April, a rise of nearly $9 billion. That’s an 11.6 annual annual growth rate, and it brings total revolving debt to the highest level since February 2010. The rise comes on top of an upwardly revised 6.6 percent rate in March, according to the Federal Reserve’s preliminary G.19 report on consumer credit.

Total consumer debt rose $20.6 billion in April to about $3.38 trillion — an annualized increase of 7.3 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, such as back-to-school or holiday seasons.

These statistics are good news for future credit industry growth, and support what Mike Schenk, vice president of economics and statistics for Credit Union National Association (CUNA), has seen throughout the credit sector recently, despite a slow start to the year.

“I’ve been looking at the year-over-year increases in consumer credit and I’m pretty upbeat about what’s going on,” he said. “Year-over-year gains are around 7 percent. If you look back historically, you not only see solid gains but you see an increase in consumer credit accumulation. It’s a pretty consistent picture of the sector gaining momentum over time.”

Spending to bounce back after weak winter
Consumers may have used their credit cards more in April, but they did not buy enough to significantly affect overall spending. In fact, after controlling for inflation, total spending in April dipped by $2.6 billion (less than 0.1 percent), according to the Commerce Department.

However, personal income and savings continue to rise. Personal income increased by $59.4 billion (0.4 percent) in April, after little to no growth in March. Personal savings totaled $744 billion in April compared to $692.5 billion in March, bumping the personal savings rate — savings as a percentage of disposable income — up to 5.6 percent from 5.2 percent.

“The gains in income are due mainly to an increase in wages and salaries, reflecting the stronger labor market performance seen over the past month,” said TD Bank economist Thomas Feltmate in a research note sent to clients. “Continued gains in household income will be a key factor in underpinning the pickup in consumption activity over the remainder of year.”

More recent data shows spending may be rising already. According to Mintel’s 2015 American Lifestyles report, consumers are reverting to pre-recession spending habits, as nearly 1 in 5 say they plan to spend more month-over-month as the year progresses. The biggest spending gains will be in nonessential categories, such as travel and entertainment.

“Our data shows a continuing trend of increased spending for enjoyment purposes, including purely recreational categories of vacations and tourism, as well as alcoholic drinks and dining out,” wrote Mintel Lifestyles Category Manager Fiona O’Donnell in the news release. “Spending on technology and communications, as well as personal finance, including investments and insurance, are also expected to increase at a faster pace over the next five years.”

Jobs report supports interest rate hike
A rise in revolving debt balances and positive consumer spending indicators is coupled with a better-than-expected job report.

According to May’s employment report, 280,000 jobs were created last month, much more than early economist’s predictions of about 225,000, according to The Wall Street Journal. The jobs number is also above the average monthly job creation level of about 251,000 jobs over the prior 12 months.

“There’s no question that it’s uniformly positive report,” CUNA’s Schenk said. “We’ve added 3.1 million jobs in the last year. And, if you compare that to calendar years in the past, you have to go back to 1999 to see numbers comparable to that.”

Average hourly earnings for all employees also rose 8 cents last month to $24.96. Over the year, average earnings have increased by 2.3 percent.

“That’s the strongest reading in two years, so that’s a hopeful sign,” Schenk said. “It’s stronger than the increases in core inflation, so that’s outpacing increasing prices. Plus, if you look at the past 3-month gains, the average wage gain is actually 3.3 percent.”

The overall unemployment rate increased only slightly to 5.5 percent, according to the U.S. Bureau of Labor Statistics report.

While this new report supports Federal Reserve’s plan to raise benchmark interest rates this year, a rate hike is unlikely to happen this month as many previously predicted, which is good news for balance-carrying cardholders.

“I think what this report will do is increase the likelihood that we see the Fed engaged earlier rather than later,” Schenk explained. “Federal funds futures were pushing an increase all the way out to December because the earlier weak data was creating uncertainty. However, given this report, that’s extremely unlikely.”

The Fed still has other factors to consider before raising rates, such as weak inflation and potential stock market volatility — as some analysts are predicting — so any actions are not expected to be particularly aggressive, Schenk added.

Federal interest rate hike discussions will continue at the next Federal Open Market Committee Meeting June 16-17.


See related:2015 Cash Advance Survey: Convenient cash will cost you plenty, Why credit limits aren’t revealed until after you get the card

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