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Consumer credit card debt jumped by $10 billion in July, per Fed’s G.19 report

Consumer spending continues to support economy

Summary

Although growth continues, consumers are a bit less optimistic about the economic outlook, and the ongoing trade war creates uncertainty.

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Card balances surged in July, according to a report released Monday by the Federal Reserve.

Consumer revolving debt – which is mostly based on credit card balances – rose $10 billion on a seasonally adjusted basis in July to $1.08 trillion, the Federal Reserve reported in its G.19 consumer credit report. Card balances gained 11.25 percent on an annualized basis. It was the largest revolving debt increase reported by the Fed since November 2017, and it followed a roughly $200 million decrease in June.

“I think this significant increase is a good sign because it shows strong consumer confidence,” said Ted Rossman, senior industry analyst at CreditCards.com. “The bigger test will likely come in the August numbers to be released next month. Stocks were up for most of July and down for most of August due in large part to trade war pessimism.”

Rossman also noted that consumer spending has tended to rise in July in recent years due to back-to-school shopping. The Fed reported a $9.9 billion increase in revolving debt in July 2018, on the heels of a slight decrease in June 2018.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up $23 billion to $4.12 trillion in July, making for an annualized growth rate of 6.75 percent.

See related:  Card balances dipped slightly in June, Fed reports

Will trade war uncertainty filter down to consumers?

Consumer spending continues to support the economy, rising a robust 0.6 percent in July, the government said in another report, while consumers saw their income gain 0.1 percent.

According to Diane Swonk, chief economist for Grant Thornton, consumers looked to savings to supplement their spending in July.

In online commentary she observed, “It is unclear how long they will continue to do so, given the slowdown in incomes and prospect of more tariffs on the horizon. August spending will probably remain strong as consumers scramble to buy ahead of tariffs starting on Sept. 1, but those gains will likely borrow from gains in the fourth quarter.”

In its quarterly report on household debt, the Federal Reserve Bank of New York said credit card balances increased in the second quarter to $868 billion, from $848 billion in the first quarter. Also, 5.2 percent of credit card balances tipped into the “serious delinquency” category – with payments not received on them for 90 days or more – up from 5 percent for the first quarter.

See related:  Average credit card debt reached $5,700 in 2018, per CFPB

Consumer expectations for spending, income dip

In its survey of consumer expectations for August, the New York Fed reported that consumers were more optimistic about access to credit, with fewer respondents (at 25.5 percent) reporting that credit was harder to come by than it was 12 months ago. That number was down from the 27.5 percent who reported more difficult credit access in July.

However, consumers seemed more pessimistic about the outlook for credit access, with 17.9 percent anticipating that it would be easier 12 months from now, down from 18.7 percent for July. And the number of those who anticipate it will be harder to access credit 12 months from now rose to 33.9 percent, from 31.4 percent in the last period.

Other survey findings include:

  • Growth expectations for median household income dipped from 2.9 percent in July to 2.7 percent in August.
  • The average expected probability of missing a minimum debt payment in the next three months was down to 11.1 percent, from July’s 11.7 percent. The 12-month average for this probability is 11.9 percent.
  • Consumers expect that their spending growth will taper off marginally, with spending growth expectations down to 3.2 percent, from 3.3 percent.
  • Fewer respondents were optimistic about their household financial situations, and expectations for this measure looking a year ahead.
  • The average probability that the U.S. unemployment rate 12 months ahead will be higher rose to 38.3 percent, from July’s 36.1 percent. This probability is also higher than its 12-month average of 36.6 percent.

Job growth continued in August

Although the New York Fed survey indicates that consumers are less optimistic about the job market outlook, the U.S. economy continues to add jobs.

In August, the unemployment rate remained at 3.7 percent, while the economy added 130,000 jobs. The additions include 28,000 government jobs, with this figure receiving a boost from the government’s hiring of temporary workers for its census survey.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted in a Sept. 6 report, “The trend is softening, as firms scale back hiring plans alongside capital spending, in the face of prolonged and deep uncertainty.”

And at the Federal Reserve’s annual Jackson Hole, Wyoming, meeting in August, Fed Chairman Jerome Powell talked about challenges for monetary policy. He noted that key developments since the Fed’s last rate-setting meeting in July, during which the central bank eased its target for interest rates to support the economy further, include the Trump administration’s imposition of new tariffs on imports from China.

Powell said, “We have seen further evidence of a global slowdown, notably in Germany and China. Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong and the dissolution of the Italian government.”

However, consumer spending continues to drive the U.S. economy, he added, and inflation appears to be moving up closer to the Fed’s 2 percent target. (For July, the government reported that the Fed’s preferred personal consumption expenditure price index rose 1.4 percent over the year, from June’s 1.3 percent rise.)

Powell added, “Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

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Credit Card Rate Report Updated: April 8th, 2020
Business
14.03%
Airline
15.50%
Cash Back
16.22%
Reward
15.93%
Student
15.87%

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