Card balances surged by $8.3 billion in October

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Brady Porche

Staff Reporter
Focusing on credit scores and what consumers can do to improve them

 

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 




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