Fed consumer credit report: Card balances rise 5.7 percent
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Revolving debt in the United States rose for a fifth consecutive month in July, the Federal Reserve said Tuesday.
The nation's revolving debt balance -- primarily composed of credit card balances -- hit $914.6 billion, an increase of about $4.3 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 December 2009. The annualized growth rate now rests at 5.7 percent.
Overall, total consumer debt rose $19.1 billion in July to about $3.45 trillion -- an annualized increase of 6.7 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.
Evidence of consumers' willingness to take on more debt in July comes amid another positive consumer spending report. Total spending increased by $37.4 billion (0.3 percent) in July, according to the Commerce Department. June's spending gains were also revised up to 0.3 percent from 0.2 percent. The report also said consumer spending grew at an annualized rate of 3.1 percent, up from the 2.9 percent estimate of the first quarter.
Wages and salaries increased $35.8 billion in July compared to June's increase of $14.3 billion, indicating that with more money in their pockets, the upward spending trend may continue.
"Also encouraging were the income figures, with solid gains now being reported in each of the last four months," said TD Bank economist Thomas Feltmate in a research note. "Interestingly, up until this month, these gains have come in spite of any material acceleration in wage pressures. However, with some nascent signs of wage gains now emerging, we should see further support to household incomes over the coming year, providing a further boost to consumer spending."
Mixed job report still shows
After another increase in consumer card use and spending in July, the pace of hiring slowed abruptly in August.
According to a Labor Department report, only 173,000 jobs were created in August, well below the 220,000 jobs economists predicted and the lowest monthly gain since March, according to The Wall Street Journal.
However, the potential for later revisions means this new report should not yet be cause for major concern. Upward revisions added more jobs to June and July's initial reports; the latest estimates show 221,000 jobs have been created in each of the past three months.
" ... One can take some comfort from the fact that government has in recent months added consistently to payrolls after years of weakness," said TD Bank senior economist Michael Dolega. "Additional comfort could be derived from history, with August payrolls typically seeing strong upward revisions, with the third reading about 74,000 higher than the first reading during this recovery. If history repeats itself, the 173,000 gain in August could look closer to 250,000 by the time November rolls around."
On a more immediately positive note, average hourly earnings for all employees increased substantially in August, rising eight cents to $25.09, following a six cent increase in July. Over the year, average hourly earnings have increased 2.2 percent.
The unemployment rate has also edged down to 5.1 percent, the lowest since 2008, and the number of jobless declined to 8 million from approximately 8.3 million in June and July, according to the Bureau of Labor Statistics.
Overall, the U.S. job market is steadily growing despite the recent mix of employment statistics -- and even the recent ups and downs of the stock market, according to Ethan Senturia, CEO of Dealstruck, a small business financing organization.
"We are focused on financing growth so business owners come to us because they want to hire a handful of people or a number of sales staff," he explained. "We do see small businesses investing in growth and I don't know that the volatility in the stock market is really going to affect that. Much of that volatility is coming from factors outside the U.S. economy. Certainly over time volatility may make businesses pause, but the market has been on the rise for five years so it makes sense that it might correct itself occasionally."
September rate hike in limbo
Despite some positive economic indicators, others say there is reason to believe the Federal Reserve will postpone raising benchmark interest rates once again.
"While there are reasons not to put too much emphasis on this report, we nonetheless feel that the details are not overly reassuring as far as U.S. economic strength is concerned," Dolega said. "In light of this, and continued global uncertainty and market turmoil, we expect the Fed will delay its long-awaited liftoff in September."
Others, such as Global Risk Insights analyst Mikala Sorenson, remain leery about a September rate increase. She cites a "patchy labor market recovery" and low inflation. "The recovery of the US economy is still fragile, and a premature rate increase could send the economy back into recession," Sorenson wrote in an August column.
The Fed is expected to review rate hike plans at the next Federal Open Market Committee meeting Sept. 16-17.
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