Research and Statistics

Fed: Card balances rose by $5.7 billion in August


Credit card balances edged closer to the $1 trillion mark in August, according to the Fed

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Credit card balances edged closer to the $1 trillion mark in August, according to a federal government report released Friday.

Consumer revolving debt – primarily credit card balances – increased by $5.7 billion on a seasonally adjusted basis to $999.7 billion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 7 percent.

The Fed’s monthly consumer debt calculations have undergone numerous revisions this year. Revolving balances reportedly crossed the $1 trillion mark for the first time since the Great Recession in February and were seen setting an all-time high four months later. But the Fed’s July report showed that while card balances had steadily grown since a post-recession trough in April 2011, they had yet to reach $1 trillion again.

Total consumer debt, which includes car loans and student loans on top of revolving balances, increased by $13.1 billion to $3.77 trillion in August, an annualized growth rate of 4.2 percent.

The average interest rate on credit card accounts was 13.08 percent in August, according to the Fed report, up from a 12.77 percent average in May, the last time interest rates were examined in the consumer debt figures. The average rate on accounts that were charged interest because they carried a balance was 14.87 percent, up from 14 percent in May.

More consumers carrying balances, but most still pay on time

As revolving balances continue to swell, credit cards have become the most common form of debt in U.S. households. The Fed said in its latest Survey of Consumer Finances, published Sept. 27, that while the average card balance per household fell from $5,900 to $5,700 between 2013 and 2016, card debt surpassed home mortgages as the most widely used form of debt. Additionally, more households acknowledged having card debt that they couldn’t pay in full every month.

More consumers are carrying card balances month-to-month, and many hold on to revolving debt for several years. But card delinquencies remain at 15-year lows, and new data from the American Bankers Association (ABA) show they fell in the second quarter.

“Consumers continue to manage their cards very well,” ABA chief economist James Chessen said in a news release. “Quarter after quarter, Americans have succeeded at keeping credit card balances low in relation to their disposable income.”

Meanwhile, the U.S. economy continues to expand. Economists at TD Bank believe GDP grew in the third quarter, albeit at a slightly depressed rate due to Hurricanes Harvey and Irma.

Personal income rose 0.2 percent in August and consumer spending increased by 0.1 percent, according to a Bureau of Labor Statistics report. The federal government said inflation-adjusted spending fell due to a car sales decrease, which was partially offset by higher health care spending.

December rate hike a ‘done deal’?

As expected, the Fed opted not to raise the federal funds rate at its September Federal Open Market Committee meeting. While inflation rate still lags far behind the Fed’s target inflation rate of 2 percent, analysts expect a new quarter-point rate hike in December. It would be the fifth such increase since December 2015.

“[Fed] Chair [Janet] Yellen very clearly believes this won’t last, both because she thinks recent core numbers have been held down by transitory factors and because she fears future upward pressure from the tightening labor market,” Ian Shepherdson, chief economist at Pantheon Macroeconomics said in a Sept. 29 email report. “We reckon a December rate hike is just about a done deal.”

A disappointing September jobs report is not expected to slow momentum for a December rate hike. The Bureau of Labor Statistics said nonfarm payrolls fell by 33,000, likely due to the impacts of Hurricanes Harvey and Irma. But the unemployment rate fell to 4.2 percent, and if it falls much further the Fed may be pressed to raise rates to tame inflation.

“Looking ahead, we would expect the October jobs report to show a solid rebound,” Leslie Preston, senior economist at TD Bank, wrote in an Oct. 6 report. “Provided the data excluding the effects of the hurricanes remains solid, we continue to expect the Fed to hike rates in December.”

A rate hike will likely trigger a new round of APR increases by credit card issuers. Average APRs for new card accounts stand at 16.15 percent as of this week, according to the Weekly Credit Card Rate Report.

See related: Fed: Card balances jumped by $2.6 billion in July

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