Fed: Card balances rose by $5.1 billion in December

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Brady Porche

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

 

Card balances rose to a new
all-time high in December, according to a federal government report released
Wednesday.

Consumer revolving debt –
primarily credit card balances – increased by $5.1 billion on a seasonally
adjusted basis to $1.028 trillion, per the Federal Reserve’s G.19 consumer credit
report
. The annualized
growth rate was 6 percent.

U.S. consumers broke a nine-year-old record for revolving
debt in November
, when
card balances reached $1.023 trillion. It was the highest revolving debt level
since April 2008, when it reached $1.02 trillion. Last September, card balances
broke the $1 trillion mark for the first time since January 2009.

Total
consumer debt, which encompasses student and car loans along with revolving
debt, increased by $18.4 billion to $3.84 trillion in December, an annualized
growth rate of 5.8 percent.

Student loan debt has increased by
$10.7 billion to $1.49 trillion since the Fed last reported it in September.
Auto loan balances have jumped by $11.9 billion to $1.11 trillion since September. 

March rate hike
expected as Powell takes over Fed

Consumers are beginning to see strong wage gains in an
already robust labor market as they rack up record levels of debt. The U.S.
economy added 200,000 jobs in January, and average hourly earnings increased by
0.3 percent. The unemployment rate held steady at 4.1 percent.

With the economy continuing to hum along, many analysts
expect a new quarter-point rate hike during the Federal Open Market Committee’s
(FOMC) March meeting. It would be the sixth rate increase since the Fed began
an effort to normalize interest rates in December 2015. FOMC projections
show a majority of committee members expect three rate hikes this year.

“On balance, this economic backdrop is in line with the
Fed’s outlook, where they see continued gradual rate tightening,” said Sam
Bullard, senior economist at Wells Fargo. “The Fed has three rate hikes
projected for 2018 … and all still looks well for that first rate hike to occur
at the March FOMC meeting.”

The March FOMC meeting will also be the first for new Fed
Chair Jerome Powell, who was confirmed by the Senate Jan. 23. Powell is widely
expected to follow the path of gradually normalizing rates
that was
established under his predecessor, Janet Yellen. But a labor market nearing
full employment and a new set of tax cuts signed into law by President Trump
could force the Fed to quicken
the pace of rate hikes
.

“His appointment comes at a critical juncture for the Fed,
as it faces a tight labor market coupled with stimulus coming from fiscal
policy,” TD Bank Senior Economist Michael Dolega said in a Jan. 30 report.

Rising interest rates will make it costlier for consumers to
carry balances on their credit cards. Variable APRs on new card accounts are at
an all-time high, per the CreditCards.com
Weekly Credit Card Rate Report
.

Meanwhile, data from
the American Bankers Association
(ABA) show a steady widening of the gap between
people who carry balances (43.7 percent of all accounts) and those who pay
their balances in full each month (29.1 percent).

However, credit card debt as a share of income (5.61
percent) remains well below pre-recession levels, ABA said.

Personal saving rate
has fallen to pre-recession low

Personal spending rose by 0.3 percent when adjusted for
inflation and real disposable income grew by 0.2 percent in December, according
to a federal government report.

But as Americans earn and spend more, they’re saving less. The
personal saving rate fell to 2.4 percent – a 12-year low. Ian Shepherdson,
chief economist at Pantheon Macroeconomics, said in a report that consumers may
be willing to save less given the tight labor market and an increase
in asset prices
over the past year.

“Savings rocketed
after the crash in 2008, but few analysts would have predicted it could come so
close to revisiting its pre-crash lows again so quickly,” Shepherdson wrote.  

A recent Bankrate
survey
revealed almost one in five Americans would pay for an unexpected
$1,000 expense with a credit card, and less than 40 percent would cover it with
savings. But more consumers may be compelled to build their emergency savings and
rely less on plastic for stopgap funding, especially if balances keep growing
and interest rate rises accelerate. 

See related: Fed: Consumers set all-time revolving debt record in November 




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