Revolving debt rose 7.4 percent in June, maintaining the highest balance in five years, according to the Federal Reserve Friday.
The nation’s revolving debt balance — primarily composed of credit card balances — hit $906.5 billion, an increase of about $5.5 billion, according to the Federal Reserve’s preliminary G.19 report on consumer credit. This growth spurt leaves card balances at the highest level since February 2010. The annualized growth rate now rests at 7.4 percent.
Outstanding student loans outstanding now total $1.26 trillion, up about $1 billion from March, the most recent month on record. Auto loan balances have now reached $994.3 billion, a $22.1 billion increase from March. The Fed reports student and auto loan debt at the end of each calendar quarter.
Overall, total consumer debt rose $20.7 billion in June to about $3.42 trillion — an annualized increase of 7.3 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.
Amid growing debt balances, consumer spending growth decelerated in June, indicating economic growth may have lost some momentum at the end of the second quarter.
Total spending increased by $25.9 billion (0.2 percent) in June which is the smallest gain since February, according to the Commerce Department. The most recent growth figures are also weak compared to May’s revised $90.8 billion growth.
However, the second quarter’s GDP report still showed that real personal consumption expenditures — a measure of how much consumers have spent adjusted for price changes — increased 2.9 percent overall in Q2, compared to just 1.8 percent in Q1. One month’s sluggish spending data does not change expectations that the Federal Reserve will raise benchmark interest rates later this year.
“We expect growth momentum to re-accelerate over the next few months, providing the Fed with the necessary confidence they need to raise rates in September,” said Millan Mulraine, deputy chief economist at TD Securities in New York, in a Reuters report.
First jobs report of Q3 solid, reinforces fall rate hike
Ongoing reports of rising card balances and the most recent employment figures signal a steady, if slow, economic recovery.
According to a Labor Department report, 215,000 jobs were created last month, slightly below the 223,000 jobs economists predicted, according to CNBC. Further revisions to previous month’s figures brought May’s job creation total up slightly to 260,000 from 254,000. June’s figures were also revised up to 231,000 from 223,000. Overall, employment gains in May and June were 14,000 higher than previously reported.
While July’s employment figures weren’t as hefty as earlier months, “It was a solid report, nothing overly concerning,” said Scott Hoyt, senior director of consumer economics for Moody’s Analytics.
Both the unemployment rate (5.3 percent) and the number of unemployed persons (8.3 million) went unchanged, according to U.S. Bureau of Labor Statistics historical data.
However, “We are steadily adding over 200,000 jobs per month and given that we don’t need more than 100,000 to keep pace with labor force growth, that’s sufficient to keep the labor market tightening,” Hoyt said. Over the past three months, an average of 235,000 jobs have been created per month, according to the Labor Department.
Average hourly earnings for all employees increased mildly in July, rising five cents (0.2 percent) to $24.99. Over the year, average hourly earnings have increased 2.1 percent.
“To date, the one fly in the ointment has been the slow pace of wage growth,” said James Marple, senior economist for TD Bank, in a research note. “Average wage growth of 0.2 percent won’t cause anyone to spill their coffee, but it signals continued improvement.”
Slow wage growth may be contributing to a stagnant civilian labor force participation rate, which was unchanged at 62.6 percent in July after a June decline.
“That’s definitely one piece of the labor market recovery that we really haven’t seen yet,” Hoyt said. “It may take faster wage growth to entice people back to the labor force.”
Overall, the newest employment report supports the predicted September benchmark interest rate hike, which the Feds discussed at the July Federal Open Market Committee meeting last week.
“We don’t think there is anything here that would change expectations,” Hoyt added. “They said they needed to see some more improvement in the labor market in order to tighten regulations and we are seeing that improvement.”