Revolving debt increased at a 1.3 percent annual pace in October, according to the Federal Reserve’s preliminary G.19 report on consumer credit.
Credit card balances continued to rise in October, the Federal Reserve said Friday.
Revolving debt increased at a 1.3 percent annual pace in October, up from a revised 1.9 percent increase in September, according to the Federal Reserve’s preliminary G.19 report on consumer credit. Revolving debt is predominantly composed of credit card balances.
Total consumer debt rose 4.9 percent in October to approximately $3.28 trillion. Total consumer debt includes car loans, student loans and revolving debt, but excludes mortgages, so it represents the short-term credit obligations consumers hold in a given month. All figures are seasonally adjusted to account for expected out-of-the-ordinary fluctuations that may occur, such as back-to-school or holiday seasons.
Consumer spending is steadily increasing once again, up approximately $27.3 billion (0.2 percent) in October after a revised $4.1 billion (0.1 percent) increase in September, according to the Commerce Department.
Consumers continue to save at a constant 5.0 percent rate. Personal savings totaled $651.2 billion in October compared to the $654 billion saved in September. Personal income growth was also fairly constant, increasing at a 0.2 percent ($24.6 billion) rate, just like September.
Wage growth strengthens economic, spending outlooks
Higher card balances build upon an even stronger job market and the first sign of solid wage growth in over a year.
November’s employment report numbers exceeded economist’s expectations with 321,000 jobs created last month, much higher than early predictions of about 230,000. This is the highest reported month-over-month since January 2012, according to Labor Department historical data.
Adding to the report’s positivity are upward revisions made to September and October numbers, making recent employment gains 44,000 more than previously reported. The unemployment rate continues to hold steady at 5.8 percent.
“All in all, the report was really terrific,” said Michael Dolega, senior economist for TD Bank. “I also think the share of industries expanding their employment opportunities make the total jobs number really very solid.” November job gains were widespread, led primarily by growth in professional and business services, retail trade, health care and manufacturing. “It goes to show that the economy is really picking up speed,” he added. “And there are finally some signs of stronger wage gains this month.”
Average hourly employee earnings rose 9 cents (0.4 percent) to $24.66 in November, indicating that the economy’s steady growth this year is starting to translate into financial gains for workers. And, as employment opportunities increase, so does consumer’s ability to spend more and take on new debt.
“I think the credit cycle has definitely turned,” Dolega said. “As more and more people are getting jobs, the confidence that goes with that increases, and as a result people should be willing to take on a bit more debt. And when you put that in context with lower gasoline prices — which is essentially a tax cut for consumers — it’s even better news for consumer spending in the months to come.”
As speculation continues about when Federal officials will begin increasing benchmark interest rate increases, some believe these new wage numbers may encourage the Fed to act sooner, if the growth trend continues.
“I think it will put pressure on the Fed to raise rates in the first half of next year by June, perhaps even March,” Craig Dismuke, chief economist at Vining Sparks brokerage told Reuters Friday.
However, consumers with balances on variable APR credit cards shouldn’t worry about scrambling to repay their debts just yet. November’s employment data only bumped the year-over-year wage growth from 2.0 percent to 2.1 percent, indicating there is still a ways to go before overall growth becomes significant enough to encourage Federal policy changes, according to Dolega.
“I do think the market has broadened the expectations for the first hike but I think the Fed is definitely going to wait for more confirmation,” he said. “It really depends on the data and how sustained these wage gains become.”