Fed: Card balances jumped by $2.6 billion in July

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

 

Consumer debt rose again in July, a newly released Federal Reserve report says, but due to extensive revisions of the data, America's total credit card debt is once again officially below $1 trillion.

Consumer revolving debt, which is mostly credit card balances, increased by $2.6 billion on a seasonally adjusted basis to $994.5 billion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 3.2 percent. July's card balances were the highest since February 2009, when they reached $997.6 billion. 

Total consumer debt, which measures student loans and car loans in addition to revolving balances, increased by $18.5 billion to $3.75 trillion in June, an annualized growth rate of 6 percent.

Economy rolls on amid record consumer debt
Although increasing consumer debt has stoked fear in some corners of another credit crash, the U.S. economy remains on strong footing. Real GDP grew 3 percent in the second quarter, after a revision by the Bureau of Economic Analysis. It was a strong contrast to the meager first quarter GDP growth rate of 1.2 percent, which many experts believed would be short-lived.

The second quarter increase was driven in part by strong consumer spending, which increased by 3.3 percent (revised from a 2.8 percent increase in a previous report).

“The revision to consumer spending was the highlight of this report, indicating that the consumer, helped along by strong job and income growth, has woken up after the first quarter lull,” Michael Dolega, senior economist at TD Bank, wrote in an Aug. 30 report.

The strength in consumer spending carried over into the start of the third quarter. Data from the federal government show personal consumption expenditures grew 0.3 percent in July, on top of a 0.4 percent increase in personal income.

But Dolega cautioned that third-quarter economic growth would likely be tempered by the effects of Hurricane Harvey, which lashed the Texas and Louisiana coasts in late August. Meanwhile, job growth in August came in below expectations, with nonfarm payrolls increasing by 156,000. Job gains in June and July were revised downward to 210,000 and 189,000, respectively.

Additionally, the unemployment rate ticked up from 4.3 to 4.4 percent, and wages grew by only 0.1 percent in August.

Hurricanes, Fed shake-ups could delay next rate hike
Slow growth in wages and inflation has altered a widely held view that the Fed would raise interest rates by a quarter point in September. In a Sept. 5 speech, Fed Governor Lael Brainard indicated she’s not in favor of an aggressive rate hike strategy while the inflation rate – currently 1.7 percent – drifts below the Fed’s 2 percent target.

“We have been falling short of our inflation objective not just in the past year, but over a longer period as well,” Brainard said. “My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.”

Minnesota Fed President Neel Kashkari went even further during a panel discussion on the same day, saying the recent pace of rate hikes may be depressing wage and inflation growth. The Fed has raised interest rates four times since December 2015, each time by a quarter of a point.

Many analysts expect a new rate hike in December, though recent events warrant some caution. The economic impact of Hurricane Harvey is likely to be compounded by that of Hurricane Irma, which was steaming toward Florida as of the first week of September.

Additionally, Fed Vice Chairman Stanley Fischer in September announced his resignation – a move that could allow President Trump to significantly alter the board’s make-up when Fed Chair Janet Yellen’s term ends in February. 

“Given the disruptions caused by Hurricane Harvey, presumed disruptions from Irma, the resignation of vice chairman Fischer … the risks that the hike is delayed into next year are clearly growing,” Scott Hoyt, senior economist at Moody’s Analytics, said in an e-mail.

A delay in rate hikes may be a relief to many cardholders, who have seen variable APRs continuously rise to new heights this year. Average APRs on new cards reached 16 percent in late June and have risen by 0.14 percentage points since then, according to CreditCards.com’s Weekly Credit Card Rate Report. 

See related: Fed: Card balances rose by $4.7 billion in June


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Updated: 11-23-2017