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Fed: Card balances jumped by $7.2 billion in May

A New York Fed survey finds that consumers expect access to credit to improve in the next year

Summary

Credit card balances continued their upward climb in May, according to the Federal Reserve, as consumers continue to ride the economic expansion train.

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Credit card balances continued their upward climb in May, according to the Federal Reserve, as consumers continue to ride the economic expansion train.

Consumer sentiment continues to be positive as the lengthy recovery has resulted in healthy job growth, and boosted consumer wages and spending.

Consumer revolving debt – which is mostly based on credit card balances – rose by $7.2 billion on a seasonally adjusted basis to $1.072 trillion, the Federal Reserve reported in its G.19 consumer credit report. Its annualized growth rate was 8.25 percent.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up  $17.1 billion to $4.088 trillion, making for an annualized growth rate of 5 percent.

The average interest rate on credit card accounts was 15.13 percent in May, up from a 15.09 percent average in February, the last time interest rates were reported in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 17.14 percent, up from 16.91 percent in February.

See related:  Card balances rose in April, Fed’s G.19 report finds

Job growth continues to surprise

For June, the government reported that the economy added 224,000 jobs, a healthy pace for the later stages of a recovery. However, the pace of growth has slowed from an average monthly gain of 223,000 jobs in 2018 to 172,000 so far this year.

Average hourly earnings rose 3.1 percent year-over-year in June, and 0.2 percent from May levels. The unemployment rate edged up to 3.7 percent as more people were drawn into the labor force (the labor force participation rate ticked up to 62.9 percent).

According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, the rise in unemployment and labor participation for June is “not statistically significant.”

However, in his daily email commentary, he noted, “Payroll growth at this pace, or anything like it, will continue to push the unemployment rate down over time.”

He sees the slowdown in average monthly job creation compared to last year as “inevitable, given the fading of the boost to demand from last year’s tax cuts.”

And James Marple, senior economist at TD Economics, noted in an online post, “So much for the slowing job market narrative. After a scare in May, job growth returned to form in June. Continued above-trend growth belies concerns that the American economy is turning over.”

See related:  Although risks to outlook are up, Fed takes no action on rates

Consumer sentiment remains positive

In its June semiannual monetary policy report to Congress, the Federal Reserve noted that “loans remained widely available for most households, and credit provided by commercial banks continued to expand at a moderate pace.”

The Fed reported that even though interest rates rose on consumer loans and there was “some reported further tightening in credit card lending standards, financing conditions for consumers largely remain supportive of growth in household spending.”

The Fed pointed to a recent improvement in the Michigan index of consumer sentiment, which had declined earlier. The Conference Board, an economic research group, also saw its measure of consumer sentiment improve in the second quarter, from its first quarter levels.

And the Federal Reserve Bank of New York said in its June Survey of Consumer Expectations report “respondents were generally more upbeat about their financial situation and about the labor market, with expectations about the U.S. unemployment rate, finding a job and losing one’s job all improving.”

Borrowers expect access to credit to improve next year

The New York Fed survey finds:

  • Household spending growth expectations, which tend to be volatile, dipped from 3.5 percent in May to 3.3 percent in June.
  • Consumers’ perceptions of credit access compared to last year were unchanged, while they were more optimistic about access to credit in a year’s time.
  • Consumers saw their average probability of missing a minimum debt payment in the next three months as 10.6 percent, down from 11.5 percent in May, reaching its lowest level since June 2013.
  • People expected to be better off financially in a year’s time, and also felt better about their current financial situation in June.
  • Respondents expected median wage growth of 2.5 percent in the year ahead.
    Expectations that the U.S. unemployment rate would be up in a year’s time were down slightly to 36.3 percent, compared to May’s 36.7 percent.
  • Consumers also were more upbeat about the prospects for finding a new job if they lost their current jobs, with this average probability rising to a series high of 63.7 percent, from 61.5 percent in May.
  • They were also more optimistic about holding on to their current jobs, with 13.5 percent being the average perceived probability of losing a job in the next year, down from 14.7 percent for May.

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Credit Card Rate Report Updated: August 21st, 2019
Business
15.55%
Airline
17.49%
Cash Back
17.63%
Reward
17.49%
Student
17.69%

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