Research and Statistics

Fed: Card balances rise $1.5 billion in April


Credit card balances continued to creep toward an all-time high in April, according to a federal report released Wednesday

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Credit card balances continued to march toward an all-time high in April, according to a federal report released Wednesday.

Consumer revolving debt, primarily credit card balances, increased by $1.5 billion on a seasonally adjusted basis to $1.01 trillion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 1.8 percent.

Revolving debt passed the $1 trillion mark in December, then fell to $999.2 billion in January before steadily rebounding to $1 trillion in February, after revisions. Card balances are on pace to break an all-time high of $1.02 trillion set in April 2008. The revolving debt load this past April was the highest since November 2008, when it reached $1.01 trillion.

Total consumer debt, which includes auto and student loans and card balances, increased by $8.1 billion to $3.8 trillion in April, an annualized growth rate of 2.6 percent.

Consumers ready to spring for big ticket items
Consumers continue to drive economic growth as their incomes rise and they spend more. Personal income and outlays both increased by 0.4 percent in April, a report from the Federal Bureau of Economic Analysis said. Higher spending was driven by demand for recreational vehicles and goods and gasoline.

April’s strong outlays trend was a welcome rebound from a soft first quarter driven by volatile utilities spending and falling auto sales.

“The jump in spending on durable goods is particularly encouraging \u2026 despite Q1 weakness, consumers remain confident to purchase big ticket items,” TD Economics Senior Economist Leslie Preston wrote in a May 30 report.

The average consumer can expect little difficulty in getting credit to buy big-ticket items. In May, The Wall Street Journal, citing new data from FICO, reported that the average U.S. consumer credit score is 700 – the highest level since 2005. Experts say a score of 700 or above is sufficient to qualify for most credit cards – though perhaps not “elite” cards that offer tens of thousands of bonus reward points.

The rise in the average credit score is another sign that the recent return to pre-recession debt levels is not a harbinger of doom. Delinquency rates are still near all-time lows, and small upticks tend to be driven by increased lending to subprime consumers.

“The fact that the average American can qualify for a credit card may indeed indicate that most can manage debts well,” said Mike Schenk, vice president of economics and statistics at the Credit Union National Association. “Consumers – even those with less than stellar credit histories – can usually obtain a card, but those who are higher credit risks will usually have fewer options and pay higher fees and interest rates on balances.”

Weak jobs report could slow rate hikes
All indications are that the Fed will raise interest rates for the third time since December at its meeting that concludes June 14. Last month the members of the Federal Open Market Committee (FOMC) expressed their view that weak economic growth of 1.2 percent in the first quarter was likely to be short-lived.

“Members \u2026 continued to expect that, with gradual adjustments in the stance of the monetary policy, economic activity would expand at a moderate pace, labor market conditions would strengthen somewhat further and inflation would stabilize around 2 percent over the medium term,” the Fed said in the minutes of its May meeting.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a May 24 report he expects further rate hikes in September and December – a position little changed since the Fed last raised rates in March.

“With unemployment at 4.5 percent at the time of the [March] meeting \u2026 and still falling, the Fed’s room for maneuver has shrunk,” Shepherdson wrote.

However, a surprisingly weak May jobs report led some to reconsider their expectations of any rate hikes after June. The economy added 138,000 jobs in May – well below the consensus estimate of 182,000 – and wages grew by 0.2 percent, according to the federal government. TD Bank Senior Economist Michael Dolega said the increase in wages wasn’t as strong as the 4.3 percent unemployment rate would suggest.

“Having said that, this metric should begin to grind higher in the coming months, and should help put some upward pressure on inflation,” Dolega wrote in a June 2 report.

But Dolega concluded that the probability of additional rate hikes later this year is “diminishing.” That could offer relief to balance-carrying credit card holders, who have seen variable APRs rise to new heights this year.

See related: Fed: Card balances rose $1.9 billion in March

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