Fed: U.S. consumers shatter all-time card debt record

America's collective card debt hits $1,021,693,940,000.00

By  |  Published: August 7, 2017

Brady Porche
Staff Reporter
Focusing on credit scores and what consumers can do to improve them

 

U.S. consumers shattered the all-time record for revolving debt in June, according to a federal report released Monday.

Consumer revolving debt, primarily comprised of credit card balances, increased by $4.1 billion on a seasonally adjusted basis to $1.021 trillion – the highest level on record – according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 4.9 percent.

Consumers have been on a collision course with all-time credit card debt levels so far in 2017. In February, card balances reached $1 trillion for the first time since the Great Recession, after revisions. The previous all-time record was set in April 2008, when revolving debt reached $1.02 trillion. 

Total consumer debt, which measures student loans and car loans in addition to revolving balances, increased by $12.4 billion to $3.9 trillion in June, an annualized growth rate of 3.9 percent. Student loan debt has risen by $7.5 billion to $1.45 trillion since the Fed last reported on it in March. Auto loans have increased by $15 billion to $1.13 trillion since March.  

June's increase followed a revised $6.9 billion jump in May.

Time to rein in some lending?
Despite record card balances and rising average APRs, consumers continue to demonstrate their ability to make payments on time. In its latest Credit Card Market Monitor, the American Bankers Association (ABA) said card debt outstanding as a share of disposable income fell in the first quarter of 2017. It has stayed below 5.5 percent since 2012, ABA said.

ABA also said new card accounts rose 8.8 percent in the quarter, on the back of a continually robust economy.

“A strong labor market continues to serve as a bright spot in the U.S. economy, putting more Americans in a better position to establish and build credit,” Jess Sharp, executive director of ABA’s Card Policy Council, said in a statement.

But subprime borrowers were the fastest growing segment, according to ABA’s data. And there are signs of issuers’ loosening lending standards in the wake of the Great Recession have had a negative effect. Citing data from Fitch Ratings, the Wall Street Journal last month reported that the average net charge-off rate for the major card issuers increased to 3.29 percent in the second quarter – a four-year high.

Meanwhile, ABA reported in July that bank card delinquencies ticked upward by 0.05 percent in the first quarter after falling by the same level in previous quarter. However, card delinquencies remain near 15-year lows.

Steady job growth could mean pay raises
There is a tinge of concern that any economic downturn could severely affect the credit market. But as of July, the U.S. labor market continued to hum along, adding 209,000 new jobs, and the unemployment rate fell to 4.3 percent. The only weak spot was wage growth – average hourly earnings grew by only 2.5 percent year-over-year in July, a rate that has held steady for several months.  

In an August 4 report, Glassdoor Economic Research Senior Economist Andrew Chamberlain noted that growth in median base pay for full-time workers – a mere 1.2 percent year-over-year in July – has slowed for six consecutive months.

“Until that trend reverses, the gains from today’s economy will not be translating into improved paychecks for the average American worker, ultimately putting a damper on the consumer spending that makes up about two-thirds of overall GDP growth,” Chamberlain wrote.

Consumer spending has shown occasional sluggishness in recent months. The federal government reported Aug. 1 that personal expenditures were flat in real terms in June, following a 0.7 percent increase in May.

But other analysts have a rosier view of consumers’ take-home pay in the near term, based on the current job growth trend.

“Unemployment is at a cycle low … and alternative measures of labor underutilization are also approaching pre-recession lows,” Leslie Preston, senior economist at TD Bank, wrote in an Aug. 4 report. “That suggests that American workers are likelier to get healthier raises in the months ahead.”

Pay raises would almost certainly strengthen consumer spending, depending on the outlook for interest rates. Many cardholders may need the extra income to stay on top of their credit card payments if the Fed keeps raising its federal funds rate. Many analysts believe another 0.25-percentage-point rate hike could be due in September, likely affecting millions of consumers. It would be the fifth such increase since December 2015.  

See related: Fed: Card balances jump $6.9 billion in May


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Updated: 10-18-2017

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