Fed: Card balances up $4.2 billion in September

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


Credit card balances continued to push toward the $1 trillion mark in September, according to a federal report released on Monday.

Consumer revolving debt, which is mostly credit card balances, grew $4.2 billion on a seasonally adjusted basis to $978.8 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 5.25 percent.

September’s revolving debt load was the highest since April 2009, when it reached $981.3 billion. Cardholders have assumed $40.9 billion in new credit card debt in 2016, and they’re expected to rack up a total of $1 trillion by late January.

Total consumer debt, which comprises car loans, student loans and installment loans along with credit cards, reached $3.71 trillion in September, an annualized rate of 6.3 percent. Student loan debt has risen $32.8 billion to $1.4 trillion since the Fed last reported on it in June. Car loans have increased by $26.6 billion to $1.1 trillion since June. 

The September increase came on the heels of a 7 percent rise reported in August.

A healthy diet of debt
Credit card issuers continue to rain plastic down on eager new customers. The American Bankers Association (ABA) said in its November Credit Card Market Monitor report new credit card accounts rose 11 percent year-over-year in the second quarter. Purchase volumes increased 8.3 for super-prime accounts, 6.9 percent for prime accounts and 5.1 percent for subprime accounts. ABA said an improving labor market and rising wages led to strong consumer spending in the second quarter.

Consumers are proving adept at managing debt as their appetite for credit increases. The share of transactor accounts – held by those who pay off their balances each month – rose 0.7 percent points to 29.5 percent of all accounts. Credit card debt outstanding relative to real disposable income remained near post-recession lows at 5.2 percent.

“Even as card use increases, the amount of short-term card debt consumers carry remains very low relative to income,” ABA Executive Director for Card Policy Jess Sharp said in a news release. “Consumers continue to watch their finances carefully and avoid overextending even as their financial means improve.”

Meanwhile, monthly government data for September show consumers resumed their spending ways after taking a short breather in August. Personal expenditures rose by 0.5 percent in September, following a decrease of 0.1 percent the month before. Personal income and disposable personal income each rose by 0.3 percent.

The federal government also reported U.S. GDP increased by 2.9 percent in the third quarter – the highest quarterly gain in two years. However, TD Economics Senior Economist James Marple noted in an Oct. 31 report that overall third quarter consumer spending was weak due to downward revisions in spending levels for July and August.

“Given the disappointment on the quarterly rate of consumer spending growth in last week’s GDP report, the acceleration on a monthly basis in September is comforting,” Marple wrote.  

Rate hike: December or bust
As expected, the Federal Reserve held firm on interest rates at its November meeting. The strong GDP report and other factors solidified the belief among analysts that the Fed will raise rates by 25 basis points (0.25 percent) in December. Even economic researchers at Credit Suisse, who had previously held firm on a May 2017 rate hike forecast, changed their target date to next month based on impending changes in the makeup of the Federal Open Market Committee.

“Changing by six months may seem a big step, but the committee will next year lose its three recent hawkish dissenting members, and so we believe a decision not to hike in December is likely to be followed by months more of delay,” Credit Suisse analyst James Sweeney wrote in a research note.

Sweeney cautioned that the outlook for inflation growth – another factor that would trigger a rate hike – is “less compelling” than other economic indicators. He said anomalous rises in some elements of core inflation could be reversed in the first half of 2017. The inflation rate as of September is 1.5 percent – 50 basis points below the Fed’s 2 percent target.

It is estimated that about 9 million U.S. consumers would struggle to make their monthly credit card payments under a quarter-point rate increase.

The stress of higher monthly payments could be relieved if the current wage growth trend continues. U.S. hourly wages have grown 2.8 percent year-over-year in 2016 – the fastest gain in seven years – according to the federal government’s October jobs report. The economy added 161,000 jobs in October and the unemployment rate ticked down from 5 to 4.9 percent. 

See related: Fed: Card balances grew $5.6 billion in August

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Updated: 01-23-2019