Fed: Card debt rises sharply in April

Rise at 12.3% pace is fastest since recession

Balances on credit cards soared in April, extending March's gains, despite other signals that consumers remain reluctant to open their wallets.

Revolving debt grew at a 12.3 percent annual pace in April, on top of an upwardly revised 3.1 percent in March, according to the Federal Reserve's preliminary G.19 report on consumer credit. Revolving debt is mainly made up of balances on credit cards, and the figures are adjusted to factor out seasonal fluctuations.

The gain, while subject to revision, is the biggest percentage jump in more than a decade, excluding months that were affected by changes in the Fed's statistical methods. Total short-term consumer debt rose 10.2 percent. The figure includes car loans, student loans and revolving debt, but excludes mortgages.

April's leap in card balances came at a time of weak gains in people's income -- and in their willingness to part with cash.

Retail sales rose only 0.1 percent for the month, about one-quarter of what analysts had expected. Taking out the volatile gas and autos categories, sales were actually down 0.1 percent. That was in line with figures for consumer spending, which showed a decline for April of 0.1 percent, after a strong March.

In dollar terms, revolving debt was $870.4 billion in April, compared to a revised $861.6 billion in March. The $8.8 billion jump was the largest since $9.8 billion rise in November 2007, which came on a larger base. Total consumer short-term debt in April was was $3.18 trillion, up from $3.15 trillion.

The double-digit rise is a post-recession first for revolving debt, which has bounced around within a narrow range since the end of the recession -- having grown a scant 1.3 percent in 2013. At that pace, it would take more than a decade to return to the July 2008 seasonally adjusted peak of $1.021 trillion. Economists point to a list of reasons, including tight-fisted banks, cautious consumers and growth in other debts, particularly student loans and auto loans.

Scott Hoyt, senior director of consumer economics at Moody's.com, said a rebound in credit card debt is to be expected, but the one-month change may prove to be overstated. Given the extensive revisions that the numbers are subject to, "I like to see three or four months of data before I start claiming a trend has changed," he said. While he believes revolving debt will climb to a stronger growth path, "we need more of a return in confidence and a little better job growth."

Outlook hinges on jobs
So far this year, consumer spending is outpacing income growth, leaving "consumers needing to dip into savings (or credit) to spend," TD Economics Senior Economist Michael Dolega said in a research note. However, he expects consumption to continue to support growth through the rest of the year, as the job market and paychecks both get stronger.

That perspective got support from a Gallup poll showing that Americans' reports of their daily spending in May reached a six-year high of $98, up $10 from April's average.

What people spend is heavily influenced by the job market, which provides both the income for current purchasing and the confidence in the future to save less, or use credit.

Labor Department figures released Friday said unemployment flat-lined in May at 6.3 percent, unchanged from April.  Last year at this time unemployment was 7.5 percent. But economists found encouraging news in the report hiding behind the headline number.

"The May jobs numbers are a double shot-in-the-arm for the U.S. economy," Comerica Bank analysts said in their "Economic Insights" blog. The creation of 217,000 jobs confirms that activity is rebounding from a worrisomely slow winter, when first-quarter economic output actually declined. And the figure puts the total number of people at work at a record high level, beating the pre-recession peak by 98,000 jobs.

James Marple, senior economist at TD Economics, said in a research note that the average duration of joblessness is down for April. Wage growth is slow, he said, just keeping up with inflation, which doesn't support greater consumer spending, he said. But neither does it give the Federal Reserve a reason to raise interest rates sooner than expected -- and that is good news for variable-rate credit card users who are carrying a balance.

See related: Credit card balances post spring growth 

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Updated: 02-18-2019