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Fed: Card balances jump $7.3 billion in May

Summary

Credit card balances continued their sprint toward an all-time high in May, according to the Federal Reserve

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Credit card balances continued their sprint toward an all-time high in May, according to a federal report released Monday.

Consumer revolving debt, which is mostly credit card balances, increased by $7.3 billion on a seasonally adjusted basis to $1.019 trillion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 8.7 percent.

Card balances eclipsed the $1 trillion mark in February – a level not seen since the height of the Great Recession – after revisions. Consumers are on track to barrel through an all-time high of $1.02 trillion in revolving debt set in April 2008. May’s card balances were the highest since July 2008, when they were at $1.019 trillion.

Total consumer debt, which includes auto and student loans as well as card balances, increased by $18.4 billion to $3.84 trillion in May, an annualized growth rate of 5.8 percent.

The average interest rate on credit card accounts was 12.77 percent in May, according to the Fed report, up from a 12.54 percent average in February, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 14 percent, up from 13.86 percent in February.

May’s increase in card balances follows a $1.2 billion rise in April.

Consumer spending slows
Consumers curbed spending a bit in May, with personal expenditures rising by only 0.1 percent after two months of increases, per the Commerce Department. TD Economics Senior Economist James Marple said in a June 30 report relatively weak inflation (1.4 percent on an annualized basis) means consumers will see their incomes rise.

“Real disposable personal income has risen a whopping 4.7 percent over the past three months, the strongest growth in nearly two years,” Marple wrote. “This should continue to underpin healthy consumer spending through the second half of the year.”

Real personal income – a measure that excludes taxes and price changes – increased by 0.6 percent in May.

Consumers have the means to spend, but they have become anxious about making their debt payments on time in recent months. The New York Fed’s June Survey of Consumer Expectations found consumers pegged their odds of missing a debt payment at 13.1 percent in May, up from 12.2 percent in April and 11.2 percent in March. However, the most recent survey showed that number fell back down to 12 percent in June.

New rate hike in the fall?
The Fed last month voted to raise its federal funds rate by a quarter point to a range of 1 to 1.25 percent. Several card issuers followed suit, and the national average APR on new accounts rose to a record 16.06 percent, according to the CreditCards.com Weekly Credit Card Rate Report.

The Fed has now raised interest rates by a full percentage point since it began hiking rates back toward normal again, beginning in December 2015. Many analysts believe one more rate hike is in the cards this year, perhaps in September. Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a June report he expects the economy to add about 200,000 jobs per month in the summer months and that the unemployment rate will continue to fall.

Although the unemployment rate ticked upward from 4.3 to 4.4 percent in June, the U.S. economy added 222,000 jobs, according to the federal government. Wages grew by 0.2 percent compared to May, and they increased 2.5 percent year-over-year.

One potential roadblock to a September rate hike is relative weakness in core inflation, which is a measure of price increases for goods that are not usually vulnerable to price swings. Shepherdson noted that the annualized core inflation rate fell from 3 percent in February to zero in May – a trend he said should reverse soon.

“The numbers can be volatile, and we are reasonably confident they will rebound over the summer, clearing the way for the labor market data to trigger Fed action in September,” Shepherdson wrote.

See related: Fed: Card balances rise $1.5 billion in April, Guide to rising credit card interest rates

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