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Card balances rose up in April, Fed’s G.19 report finds

Recent trade tensions have hiked up market expectations for a rate cut from the Federal Reserve

Summary

Economic well-being remains on the rise as employment growth continued in May, albeit slowly.

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Credit card balances rose in April, according to the Federal Reserve, as consumers continue to benefit from job growth and wage increases.

Consumer revolving debt – which is mostly based on credit card balances – rose by $7 billion on a seasonally adjusted basis to $1.064 trillion, the Federal Reserve reported Friday in its G.19 consumer credit report. Its annualized growth rate was 7.9 percent.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up $17.5 billion to $4.069 trillion, making for an annualized growth rate of 5.25 percent.

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Employment growth continues

The government also reports that the streak of job growth continues, with U.S. jobs growing 75,000 in May, with unemployment steady at 3.6 percent.

However, figures for job growth in March and April were both revised down. Hourly earnings have risen 3.1 percent over the year. The May jobs numbers are below the consensus expectation for 175,000 jobs, says Ian Shepherdson, chief economist at Pantheon Macroeconomics, in his June 7 daily economic commentary.

Shepherdson cautioned, “The uptick [in jobs] won’t be sustained if the administration throws itself down the rabbit hole of tariffs on imports from Mexico and on imported Chinese consumer goods but, for now, we think private job growth will average about 175K over the next three months.”

The trade tensions, together with slowing employment numbers, have hiked up expectations for a rate cut from the Federal Reserve.

“The May employment report disappointed at a critical time, when fears that the economy is slowing have flared. That weakness, coupled with a desire by the Fed to extend what has become a marathon of an expansion, has opened the door to a preemptive cut in rates by the Fed,” Diane Swonk, chief economist with Grant Thornton, wrote in a June 7, blog post.

Economic expansion continues – for now

In the meantime, the economic expansion continues, benefitting most U.S. households.

The Fed’s May report on the economic well-being of U.S. households in 2018 finds that most families have seen a slight improvement in their financial situation since 2017, or continue at similar levels.

Since the survey first began in 2013, many families have seen “substantial gains” given the ongoing economic expansion during this time, according to the report. Even then, the expansion hasn’t done much to narrow the economic differentials that persist across races, educational levels and geographies.

In terms of their employment situation, two-thirds of adults report that they are fully employed and working as much as they would like.

It seems 38 percent of those without a bachelor’s degree at least are more inclined to want more work, compared to 23 percent of those with at least a bachelor’s degree.  Those with lower incomes were more likely to face negative credit responses.

See related:  Should you use your credit card as your emergency fund?

Using credit for unexpected expenses

If they had to deal with an unexpected expense of $400, 61 percent of the respondents would turn to cash or dip into their savings or would resort to a credit card and pay off the balance with their next statement.

Among those who carry a card balance most of the time, 40 percent would use cash, while only 27 percent of those without a credit card would turn to cash to meet this unanticipated expense.

See related:  Guide to rising credit card interest rates

Having access to credit, paying balances

The Fed also reports that more than a third of adults applied for some form of credit in 2018, with 23 percent of applicants being denied at least once. Another 31 percent of applicants were either denied the credit or were granted less credit than they had applied for.

Most adults, at 80 percent, have at least one credit card, with higher educated, higher income, and white people being more likely to have a credit card.

Of those with a card, 47 percent paid off their bill completely every month in the previous year, while 25 percent had a balance some of the time, and 27 percent most of the time.

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Published: June 7, 2019

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Credit Card Rate Report Updated: August 14th, 2019
Business
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