Research and Statistics

Fed: May card balances rise 3 percent


Americans continued to reach for credit cards in May, as card balances rose $2.3 billion (3 percent), according to the Fed’s latest consumer credit report.

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Consumers are quick to pay with credit cards these days, as card debt rose $2.3 billion (an annualized 3 percent) in May, the Federal Reserve said Friday.

Total revolving debt – primarily credit card balances – continued its upward, post-recession march toward $1 trillion reaching $953.3 billion, according to the Fed’s monthly G.19 report on consumer credit. This increase follows substantial revolving debt growth in March, when consumers added $10.3 billion (13.2 percent) to their card balances, after revisions.

Today, card balances are at their highest level since July 2009, when revolving debt balances reached $961.2 billion. Consumers have added approximately $15.44 billion to their cards so far this year. All figures are seasonally adjusted to account for expected fluctuations; percentages are given as an annualized rate.

The average interest rate on credit card accounts fell to 12.16 percent in May, according to the Fed report. This is slightly down from February’s 12.31 percent average, the last time interest rates were examined in the consumer debt figures. The average rate on accounts actually charged interest because they carried a balance was 13.35 percent, down from 13.51 percent in February.

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The consistent increase in card balances reflects consumer sentiment about the economy and also personal financial health, according to Perc Pineda, senior economist for the Credit Union National Association.

“If people are more comfortable spending money and the cost of borrowing is low, then it’s logical that balances continue to move north,” he explained. And as card delinquency rates remain near historic lows, it appears consumers are managing their growing card balances well, too. “I think there were some really hard lessons that Americans learned during the financial crisis. People are more cautious this time, but that doesn’t mean they are not engaged,” Pineda added.

Overall, total consumer debt – including revolving and non-revolving debt – rose $18.6 billion in May to about $3.62 trillion – an annualized increase of 6.25 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.

Spending, saving growth holds steady
Consumer spending increased by $53.5 billion (0.4 percent) in May, according to the Commerce Department. May’s figures mark the second highest month of spending growth so far this year, after April’s hefty – and upwardly revised – $141.2 billion (1.1 percent) increase.

The latest spending report suggests “Consumers have built up a savings buffer related to low gas prices and rising wages and are now reaping the benefits,” according to TD Economics’ senior economist Michael Dolega in a research note.

Consumers put away another $730.6 billion in May, compared to $753.7 billion in April. The personal saving rate – savings as a percentage of disposable personal income – is now 5.3 percent, not far from April’s 5.4 percent reading.

“People tend to save more if they are uncomfortable about the economy but now that the rate is a bit lower, that means they are engaging more,” Pineda explained. “We will probably see consistent growth in personal consumption throughout the rest of the year.”

Job market bounces back
After months of soft employment figures despite rising consumer debt balances, the job market saw a burst of activity in June.

According to the Labor Department, 287,000 jobs were created last month, well above the estimated 165,000 growth figure predicted by the Wall Street Journal.

This activity follows a couple months of weak job creation. In April, 144,000 jobs were created, based on revised estimates and May’s already low 38,000-gain figure has since been revised even lower to only 11,000. Based on these latest figures, employment gains have averaged 147,000 per month over the past three months.

“I think what happened in April and May was the residual effects of a strong dollar and low oil prices, so that led to lower gains in both months,” Pineda said. As oil prices continue to rise and currency stabilizes, “that should bring about even better job figures in the months to come,” he added.

June’s unemployment rate inched up to 4.9 percent from 4.7 percent in May. The number of unemployed persons also increased by 347,000 to 7.8 million in June. Both increases offset the declines these figures saw in May, bringing both back in line with the unemployment levels that were consistent from August 2015 to April 2016, according to the latest jobs report.

Wage growth was minimal in June, but still positive. Average hourly earnings for all employees rose 2 cents to $25.61 in June. Over the past year, average hourly earnings have increased 2.6 percent.

Rate hikes on hold
On June 15 the Federal Reserve abstained from raising benchmark interest rates once again, citing worries about recent economic indicators, such as the May employment report.

“Members generally agreed that, before assessing whether another step in removing monetary accommodation was warranted, it was prudent to wait for additional data regarding labor market conditions as well as information that would allow them to assess the consequences of the U.K. vote for global financial conditions and the U.S. economic outlook,” according to Federal Open Market Committee meeting notes.

Following the Fed’s mid-June meeting and interest rate decision, Great Britain voted in favor of leaving the European Union on June 23, which temporarily shook global financial markets and has since increased speculation as to when U.S. interest rates may move next as all industry experts look for more signs of economic growth.

“In terms of Fed policy, today’s strong jobs report will likely encourage a reconsidering of interest rate policy in the remainder of 2016, with an interest rate increase likely back on the table if July and August jobs data continue the strong showing we observed today,” said Andrew Chamberlain, chief economist for Glassdoor Economic research.

Others are maintaining a “wait-and-see” perspective. “We can’t expect another rate hike until the wages and/or inflation data break clearly to the upside and payroll growth at least returns to a pace fast enough to prevent unemployment from beginning to rise,” said Ian Shepherdson, founder and chief economist for Pantheon Macroeconomics, in a note sent to clients. “We target December.”

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