Fed: July card balances rise 3.4 percent

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


Credit card balances continued their upward momentum in July, according to a federal report released on Thursday.

Consumer revolving debt — which is primarily credit card balances — grew $2.8 billion on a seasonally adjusted basis to $969 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 3.4 percent.

Credit card balances have for several months been on a steady climb toward the all-time high of $1.02 trillion first reached in April 2008, prior to the Great Recession. Revolving debt is at its highest level since April 2009, when it reached $981.3 billion. Cardholders have taken on a total of $31.1 billion in new credit card debt this year.

Total consumer debt — which includes car loans, student loans and installment loans as well as credit cards — reached $3.66 trillion in July, an annualized rate of 5.8 percent.

July’s increase follows an 11.5 percent surge reported in June. The steady rise in credit card balances can be tied to seasonal factors, said Perc Pineda, senior economist at the Credit Union National Association (CUNA).

“Travel and leisure activities in the summer months and back-to-school spending prior to September can explain increasing credit card balances during these months,” Pineda told CreditCards.com. 

Consumers driven to spend
Consumers took advantage of low gasoline prices in July by buying up cars and trucks. Data from the Commerce Department show personal consumption expenditure increased 0.3 percent between June and July. The department said the increase reflects more spending on new motor vehicles. It was the latest in a wave of month-over-month spending increases that began in April, when consumers spent $119 billion more than they had in March.

Disposable income also continued to increase, as consumers had $60.1 billion more to spend than they did in June — a 0.4-percent jump. Disposable personal income has grown every month this year except February, when it fell by 0.1 percent.

Jobs report throws cold water on September rate hike talk
The job market is cooling along with the temperature as summer winds down — and cardholders may get a temporary reprieve from higher borrowing costs.

The Labor Department said in a Sept. 2 report 151,000 jobs were added in August — slightly below the consensus estimate of 180,000 and well shy of the revised job gains reported in June (271,000) and July (275,000). The unemployment rate held steady at 4.9 percent for the third consecutive month and the number of unemployed persons was unchanged at 7.8 million.

Many analysts speculated that the Fed would increase the federal funds rate — which would boost credit card variable interest rates — during its September meeting on the back of a strong August jobs report. The latest job numbers did not elicit widespread celebration, but reports in August have been known to undershoot expectations.

“This was far from exciting, but 151,000 jobs is about right where we would expect the U.S. economy to be at this stage in the cycle,” TD Economics Senior Economist James Marple wrote in a research note. “Given the August payroll report’s tendency to underwhelm, the size of the miss likely had many breathing a sigh of relief.”

Marple said while a single report is unlikely to “make or break” the Fed’s interest rate decision, patience is warranted given below-target inflation and slowing wage growth. Wages grew only 3 cents in August and the inflation rate as of July is 0.8 percent.

However, some analysts believe the Fed will hold off on a rate increase until December. Ryan Sweet, director of real-time economics at Moody’s Analytics, told CreditCards.com there is little urgency to raise rates now as fears of an overheated job market have been allayed. Sweet said a December rate hike could be followed by more aggressive action in 2017 — perhaps a new increase every other time the Federal Open Market Committee meets next year. 

“In 2017, we’ll be at or beyond full employment,” Sweet said. “The Fed will want to step on the brake a little more than they have.”

Whatever its impact on interest rates, the latest jobs report suggests consumers will continue to add to their credit card balances without fear of racking up too much debt. 

“Slack in the U.S. economy remains and there is room for job growth,” CUNA’s Pineda said. “This means consumers are confident and are borrowing more. The latest reading on household debt service payment as a percent of disposable income is 10 percent, which is below previous levels and appears to be manageable.”

See related: Fed: Revolving debt surges in June

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Updated: 01-23-2019