Research and Statistics

Fed: Card balances jumped by $9.2 billion in October


Credit card balances increased in October, according to a report by the Federal Reserve.

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Credit card balances surged in October, according to a federal government report released Friday.

Consumer revolving debt – primarily credit card balances – jumped by $9.2 billion on a seasonally adjusted basis to $1.037 trillion, per the Federal Reserve’s G.19 consumer credit report. The annualized growth rate was 10.7 percent.

Card balance growth has been generally slow this year, with the Fed reporting decreases in five out of the 10 consumer credit reports released so far this year, after revisions. But the October 2018 level is a new all-time record, and revolving debt is still well above the $1 trillion milestone it reached in September 2017 – the first time it had risen so high since the Great Recession.

Total consumer debt, which includes student and car loans as well as revolving debt, increased by $25.4 billion to $3,964 trillion – an annualized growth rate of 7.7 percent.

See related:  Fed: Card balances fell in September

Fed data show credit market tightening

As revolving debt growth has slowed down this year, banks have pulled back on the amount of credit they issue to consumers.

A December report from the Federal Reserve showed a higher rejection rate for new card applications and credit limit increases as of October 2018, compared to the same time last year. The Fed’s survey also showed a record high level of consumers reporting initiated account closures, with credit and retail store cards being the most commonly closed accounts.

But consumers aren’t shying away from credit amid signs lenders are tightening access to it. The Fed said consumers who plan to apply for at least one type of credit over the next year is at its highest level (27.5 percent) in two years.

Meanwhile, personal incomes rose 0.5 percent and personal spending increased by 0.6 percent in October, according to a federal government report.

Ian Shepherdson, senior economist at Pantheon Macroeconomics, noted in a Nov. 30 e-mail that while October’s high spending level is not sustainable, it puts the economy on pace for a 3 percent rise in consumption in the fourth quarter.

“Consumption accounts for nearly 70 percent of GDP, so this is a solid base for the fourth quarter,” Shepherdson wrote.

Rate hike expected in December

The U.S. economy added 155,000 jobs in November – a significant drop from the 237,000 positions gained in October (after revisions). Although job growth slowed, the unemployment rate stayed at 3.7 percent and wages grew by 0.2 percent month-over-month.

Leslie Preston, senior economist at TD Bank, wrote in a Dec. 7 report that while the jobs report wouldn’t change the “pessimistic mood” of financial markets this week – the Dow plunged as much as 785 points Dec. 6 – a hiring slowdown was to be expected.

“As labor markets tighten, it gets tougher for employers to find people to hire,” Preston wrote.

A new quarter-point rate hike from the Fed in December seems inevitable. However, Preston said the pace of interest rate increases could slow down in the new year due to a recent loss of momentum in core inflation. (The Fed’s inflation target is 2 percent.)

“While we expect price pressures to pick back up in coming months, above-target inflation is less of a threat for the Fed,” Preston wrote. “That underpins our expectation that Fed hikes will be more gradual in 2019, as the economy slows.”

The recent spate of rate hikes has already inflated average card APRs to record levels. The average median APR for new accounts is 20.82, according to the Weekly Credit Card Rate Report.

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