Card balances marched toward an all-time high in October, according to the Federal Reserve
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Card balances marched toward an all-time high in October, according to a federal government report released Thursday.
Consumer revolving debt – primarily credit card balances – increased by $8.3 billion on a seasonally adjusted basis to $1.012 trillion, according to the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 9.9 percent.In September, card balances broke the $1 trillion mark for the first time since January 2009. (The Fed originally reported card balances breaking $1 trillion in February, but its figures were later revised downward.) Revolving debt is $9.3 billion away from matching an all-time high set in April 2008, when it reached $1.02 trillion. October’s revolving debt level was the highest since October 2008, when it stood at $1.017 trillion.
Total consumer debt, which includes student loans and car loans in addition to card balances, increased by $20.5 billion to $3.8 trillion in October, an annualized growth rate of 6.5 percent.
October’s revolving debt increase follows a $6.3 billion rise in September.
Coming in 2018: More rate hikes and a new-look Fed
The Fed has raised interest rates four times within the past two years, and a fifth hike is widely expected at the Dec. 13 meeting of the Fed’s rate-setting body, the Federal Open Market Committee (FOMC). Experts say there’s more to come in 2018, when Fed board member Jerome Powell takes over as chairman from the departing Janet Yellen.
“An interest rate hike this December has been widely endorsed and discussed by Federal Reserve members,” said Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego. “Three or four rate hikes appear likely in 2018 as growth and inflation strengthen.”
Powell, who earlier this week was recommended by the Senate Banking Committee for confirmation, is expected to continue Yellen’s policy of normalizing interest rates. But other changes in the Fed’s leadership could alter the outlook. Vice Chairman Stanley Fischer announced his retirement in September, and it was reported last month that New York Fed President William Dudley will do the same next year. Board members are nominated by the president and confirmed by the Senate, and Fed bank presidents are nominated by their respective boards of directors and approved by the Fed Board of Governors.
“With Jerome Powell stepping in, it should be status quo,” said Jennifer Lee, senior economist at BMO Capital Markets. “However, the replacements for Stanley Fischer and William Dudley introduce an interesting new mix as the three most powerful players at the Federal Reserve will be new.”
While the future makeup of the Fed is uncertain, the economic forecast for 2018 portends rising interest rates. The FOMC currently projects GDP growth of 2.1 percent, an unemployment rate of 4.1 percent and core inflation just one-tenth of a percentage point below the Fed’s target of 2 percent.
“We expect little change from the current forecast, with positive sentiment on growth prospects, low unemployment and gradually climbing inflation,” said Sam Bullard, senior economist at Wells Fargo.
The average APR for new credit card accounts has held steady at 16.15 percent for more than two months, according to the CreditCards.com Weekly Credit Card Rate Report. However, many card issuers will likely bump their cards’ APRs in lockstep with the expected December rate hike, as they have with previous rate hikes.
Bargain hunters spent big on Black Friday, Cyber Monday
Higher credit card interest rates in December could force some consumers to be less generous in their holiday gift-buying this year. However, sales figures for Black Friday and Cyber Monday suggest many have gotten most of their holiday shopping out of the way. A report by Adobe revealed Cyber Monday sales reached $6.59 billion – a 16.8 percent increase over 2016 figures. Thanksgiving Day and Black Friday revenue came in at $2.87 billion (an 18.3 percent year-over-year increase) and $5.03 billion (up 16.9 percent), respectively.
Before the November holiday, however, consumer spending had slowed in October, per government estimates. Analysts say it marked a return to normal after a September spike in vehicle purchases, as drivers replaced damaged automobiles in the wake of Hurricanes Harvey and Irma. The Fed reported in its G.19 consumer credit report for September that auto loans had increased by $19.3 billion since June.
TD Bank Economist Katherine Judge wrote in a Dec. 1 report that consumers will likely continue to drive economic expansion alongside businesses going forward.
“With continued job growth and accelerating wages, consumer spending should bounce back in the months ahead,” Judge wrote.
Payroll firm ADP reported the U.S. economy added 190,000 jobs in November. Pantheon Macroeconomics Chief Economist Ian Shepherdson said in a Dec. 6 report that pace of jobs added per month could lower the unemployment rate to 3.5 percent by the middle of next year – a level not seen since 1969.
See related: Fed: Card balances passed $1 trillion in September