Fed: May credit card balances rise again
Revolving debt surges past $900B mark, hits highest level since 2010
Revolving debt in the United States surged above the $900 billion mark for the first time in more than five years, the Federal Reserve said Wednesday.
The nation's revolving debt balance -- primarily composed of credit card balances -- increased in May for the third consecutive month, hitting $901 billion in May, a rise of about $1.5 billion, according to the Federal Reserve's preliminary G.19 report on consumer credit. This growth follows a revised $8.5 billion rise in April card balances that put total revolving debt at the highest level since February 2010. The annual growth rate now rests at 2.1 percent as a result.
Total consumer debt rose $16.1 billion in April to about $3.4 trillion -- an annualized increase of 5.75 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.
spending back on track
After weak April numbers, consumer spending gained significant strength in May. Total spending increased by $105.9 billion (0.9 percent) in May, according to the Commerce Department, an improvement over April's $8.5 billion increase.
Personal income also continued to rise, increasing by $79 billion (0.5 percent) in May, up slightly from April's upwardly revised $69.6 billion (0.5 percent) increase. However, consumers dipped into their savings a bit as personal savings totaled $685.5 billion in May compared to $726.9 billion in April. This activity nudged the personal savings rate -- savings as a percentage of disposable income -- down to 5.1 percent from 5.4 percent.
Despite the decline in savings, consumers are still on track for improved financial health in the months to come, according to TD economist Andrew Labelle.
"Even with the savings rate now close to its recent average, there is room to overshoot as consumer confidence rises back up to its recent cyclical high," he said in a research note sent to clients. "Meanwhile, a tightening labor market bodes well for wage gains. Together, these point to a strong consumer spending profile over the near future."
The Conference Board Consumer Confidence Index, which measures consumer's short- and long-term economic outlook, rose to 101.4 in June, up from 94.6 in May.
jobs report reinforces Feds rate hike delay
Despite increasingly positive credit card and general spending statistics, some of June's employment figures reflect economic growth weaker than previously thought.
According to the Labor Department report, 223,000 jobs were created last month, slightly below the 230,000 jobs economists predicted, according to Forbes. The unemployment rate also declined to 5.3 percent, the lowest rate since April 2008, according to U.S. Bureau of Labor Statistics historical data.
Job creation figures for May were revised downward to 254,000 from 280,000, and April's figures were revised downward to 187,000 from 221,000, making net gains between the two months 60,000 less than previously reported.
Additionally, average hourly earnings for all employees went unchanged in June, resting at $24.96. Over the year, average hourly earnings have increased by 2 percent.
Responses to June's jobs report were mixed. Some economists view it as an indicator of ongoing, subdued growth.
"The net read on the economy from the monthly labor market data is that the economy is stuck on the same shallow growth trajectory that has been in place for the past several years," Steven Ricchiuto, chief economist for Mizuho Securities USA, told The Wall Street Journal. "Even the decline in the jobless rate was a reflection of a weaker labor market."
The mixed report gives Federal Reserve reason to pause when considering whether to raise its benchmark interest rates, which would increase the cost of any credit card debt consumers have been accumulating in recent months.
"All in all, this report is not of the kind that would lead Federal Reserve officials to bring forward the first rate hike," said Michael Dolega, senior economist for TD Bank. "If anything, the exodus from the labor force and lack of wage gains would likely trump the decline in the unemployment rate, and may even lead the FOMC to re-evaluate its estimates of the natural rate of unemployment once again."
The Fed did decide to hold off raising benchmark interest rates at June's Federal Open Market Committee meeting, despite earlier predictions that rate "liftoff" would begin in June. The rate-setting committee's decision was made to allow the economy to strengthen further, according to the group's official statement.
Federal interest rate hike discussions will continue at the next FOMC meeting July 28-29.
See related: Banks' internal 'behavior scores' can decide cardholder terms, Volume of credit cards finally back up near pre-recession levels
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