Credit card balances continued to inch toward $1 trillion in October, according to the Federal Reserve’s G.19 consumer credit report
Consumer revolving debt, which is mostly credit card balances, grew $2.3 billion to $981.3 billion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 3 percent.
Card balances in October reached the highest level since April 2009, when they were also at $981.3 billion. Cardholders have taken on $43.4 billion in new credit card debt in 2016, and they’re on track to amass $1 trillion by late January.
Total consumer debt, which includes auto and student loans in addition to credit cards, reached $3.73 trillion in October, an annualized rate of 5.25 percent.
October’s increase was the ninth straight monthly rise, following a 5 percent jump in September.
Consumer spending under the weather
Consumer spending slowed a bit in October, rising 0.3 percent after a 0.7 percent increase in September, according to the federal government. The Bureau of Economic Analysis said the relative weakness in consumption was driven by a decrease in spending for services \u2014 particularly utilities. Moody’s Analytics Senior Director Scott Hoyt said lower utilities spending in October was weather-related and is likely temporary.
“That also means consumer spending \u2026 adjusted for this special factor and on a trend basis, continues to grow at a healthy pace,” Hoyt said in an e-mail. “Consumers will continue to lead economic growth going forward.”
Personal income rose 0.6 percent in October, beating analysts’ expectations by 20 basis points. The personal saving rate rose by 0.3 percent to 6.0 percent in October.
Even as card balances approach pre-recession levels, cardholders are having little difficulty making their payments on time. The New York Federal Reserve reported last month that credit card delinquency reached a 15-year low in the third quarter of 2016. The percentage of credit card balances that were overdue 90 days or more fell to 7.08 percent \u2014 the fifth quarterly decrease in a row.
Consumers are also improving their credit as they take on more debt. Experian reported in November that the average U.S. consumer credit score increased by 4 points over the past year.
One week away?
The U.S. economy added 178,000 jobs in November, which was 20,000 short of analysts’ expectations. The unemployment rate unexpectedly fell from 4.9 percent to 4.6 percent.
Despite lower unemployment, TD Economics economist Michael Dolega said the jobs report was “not overly uplifting,” pointing to weaker-than-expected gains in the private sector. Private payrolls rose by 156,000 \u2014 also 20,000 less than the consensus estimate.
“The headline print came in largely as expected, with the pace of hiring more than enough to eat up existing slack in the labor market,” Dolega wrote Dec. 2. “The details were somewhat less rosy with private sector hiring disappointing, while one-tenth of newly created private sector positions were temporary.”
Meanwhile, wages fell by 0.1 in November, and wage growth slowed from 2.8 percent to 2.5 percent year-over-year. Dolega said the downward trend was due to the retirements of highly experienced and well-paid baby boomers, and that wage growth is “likely to accelerate” after the holidays.
The jobs report was seen as the final hurdle the Fed needed to cross to act on interest rates, and we could be one week away from the first rate hike in 12 months. The Federal Reserve Open Market Committee is widely expected to announce a 0.25 percent increase in the federal funds rate at its next meeting Dec. 13-14.
“The (jobs) report overall was good enough, clearly, to keep the Fed on track to hike rates this month,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a Dec. 5 research note.
Most consumers would see up to a $10 increase in their monthly payments under a quarter-point rate hike, but some could end up paying as much as $50 more per month. Higher interest rates could be a new test for U.S. consumers, who have demonstrated a strong capacity to carry debt in recent months.
See related: Fed: Card balances up $4.2 billion in September