The expansion of credit card balances continued in October, marking eight straight months of growth, the Federal Reserve said Monday.
However, October’s national revolving debt balance increase was much smaller than the previous month’s. Total revolving debt — primarily composed of credit card balances — reached $923.6 billion, a small increase of about $200 million, according to the Federal Reserve’s monthly G.19 report on consumer credit. This is the smallest month-over-month such increase since September 2013. The annualized growth rate is now 0.25 percent.
The increasing use of credit cards may be supported by growing access to credit. A new report from the Federal Reserve Bank of New York found that only 13.5 percent of new card applications were rejected in October, compared to 22 percent one year earlier.
Overall, total consumer debt rose $16 billion in October to about $3.51 trillion — an annualized increase of 5.5 percent. This balance 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 fluctuations.
Consumer spending softens
Evidence of strong credit card use follows another report of mild consumer spending growth. Bloomberg’s economic consensus had predicted 0.3 percent spending growth for October but consumer spending actually increased 0.1 percent ($15.2 billion), according to the Commerce Department.
However, consumers are still saving at a high rate, indicating spending may strengthen in the coming months. Consumers put away $761.9 billion (5.6 percent of disposable income) in October compared to $642.8 billion (4.8 percent of disposable income) in September, per the Commerce Department report.
December rate hike on the horizon
On top of October’s strong revolving debt growth, the labor market strengthened further in November, reinforcing feelings that the U.S. economy may be ready for a Federal Reserve rate hike in December.
According to the Labor Department, 211,000 jobs were created in November, well above the 190,000 jobs economists predicted, according to a Bloomberg consensus report. Furthermore, October job gains have been revised upward to 298,000 from 271,000.
“For a long time, I’ve thought the labor market was in pretty good shape, and this just confirms that,” Scott Clemons, chief investment strategist for Brown Brothers Harriman in New York, told The New York Times.
Furthermore, average hourly earnings for all employees also rose in November, up 4 cents to $25.25 following a 9-cent gain in October. Over the year, average hourly earnings have increased 2.3 percent. The unemployment rate still rests at 5 percent, the lowest since April 2008, based on Bureau of Labor Statistics historical data.
With the latest employment report, it seems the economic goals the Federal Reserve wanted met before raising its benchmark interest rates have been achieved.
Comments made by Dec. 2 Fed Chair Janet Yellen before the Economic Club of Washington confirmed the Fed may now be confident enough to raise rates for first time since 2008. The Fed put off hiking rates at its October meeting, waiting to see further job growth and indicators that inflation would move up to the Fed’s target.
“I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market,” Yellen said. “Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent.”
Since Yellen spoke last week, many others have echoed her sentiments, supporting a rate increase now and again in the near future from the Fed’s rate-setting Federal Open Market Committee when it meets Dec. 15-16.
“The Fed’s criterion of ‘some further improvement’ in the labor market has been comfortably exceeded since the October FOMC meeting, so they’ll hike [rates] by 25 basis points on the 16th,” said Pantheon Macroeconomics’ chief economist Ian Shepherdson in a research note sent to clients. A basis point is 1/100th of 1 percent. “The second hike, we think, will come in March, as unemployment continues to fall and wage gains pick up further.”
“We expect that liftoff from the zero lower bound looks more or less a done deal, with the Fed likely to stress that future hikes will be gradual,” said TD Bank senior economist Michael Dolega.
Atlanta Federal Reserve President Dennis Lockhart also predicted a gradual rise in rates Monday. To Lockhart, who is also a voting member of the FOMC, raising rates gradually means making decisions a month at a time.
“We don’t know exactly how the economy is going to evolve,” he said on CNBC’s “Squawk Box” program. “We can’t commit ourselves … in advance to a particular pattern or particular schedule.”