Fed: Card balances rose by $9.7 billion in May

Brady Porche
Managing Editor
Personal finance journalist with an eye for industry news

 

Credit card balances surged to a new record in May, according to a federal government report released Monday.

Consumer revolving debt – primarily credit card balances – increased by $9.7 billion on a seasonally adjusted basis to $1.039 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 11.4 percent.

Card balances appeared to slump a bit in the beginning of 2018, just a few months after reaching a new all-time high in November. Small increases in revolving debt were reported in January and February, and card balances even fell slightly in March. But experts said a first quarter, post-holiday lull in spending may have been to blame, and revolving debt increased again in April.

Total consumer debt, which covers student and auto loans as well as card balances, increased by $24.5 billion to $3.9 trillion – an annualized growth rate of 7.6 percent.

The average interest rate on credit card accounts was 14.14 percent in May, according to the Fed report, up from a 13.63 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 15.54 percent, up from 15.32 percent in February.

Job gains still solid, but wage growth continues to crawl

The U.S. economy added 213,000 jobs in June – yet another strong showing, although the unemployment rate ticked up slightly from 3.8 percent to 4 percent.

While job gains continue at a robust pace, wage growth has remained stubbornly slow, increasing by only 0.2 percent month-over-month in June and 2.7 percent year-over-year.

“The fact that wage growth isn’t stronger remains a bit of a puzzle,” Leslie Preston, senior economist at TD Bank, wrote in a July 6 report. “But we take consolation that other measures of wage gains that aren’t affected by demographics or industry mix show healthier gains for workers.”

Additionally, growth in consumer spending slowed to 0.2 percent in May after consecutive gains of 0.6 percent in April and 0.5 percent in May, according to a federal government report. However, many analysts pointed out that the weakness in spending was due to lower energy demand in a relatively mild May. 

See related: Fed: Card balances rose $1.1 billion in April

Fed still on a ‘gradual’ path of rate hikes after June increase

As expected, the Fed opted to raise its benchmark interest rate by a quarter point to a range of 1.75-2 percent at its June Federal Open Market Committee (FOMC) meeting. It is the second such rate hike this year and the seventh since the Fed began normalizing interest rates in December 2015.

In a post-meeting press conference, Fed Chairman Jerome Powell said the rate-setting FOMC would continue to pursue a gradual regimen of rate hikes amid strong economic growth and job market conditions and inflation near the Fed’s 2 percent target.

“We are aware that raising rates too slowly might raise the risk that monetary policy would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardizing the economic expansion,” Powell said. “Conversely, if we raise interest rates too rapidly, the economy could weaken, and inflation could continue to run persistently below our objective.”

However, some analysts believe a more aggressive spate of hikes could begin late this year. Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted in a July 5 report that many FOMC members are concerned that U.S. trade policy (specifically tariffs and other restrictions) and political and economic developments in Europe could slow down economic growth and inflation. If that’s the case, gradual rate hikes may not be enough, he said.

“That day is coming, but likely not until December, by which time we think unemployment will be 3.5 percent or less, wage growth will have picked up appreciably, and – we hope – trade policy will be more rational,” Shepherdson wrote.

The latest rate hike pushed the average credit card APR to a new high of 16.92 percent, according to the CreditCards.com Weekly Credit Card Rate Report.

 


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Updated: 12-16-2018