Fed: Card balances jumped by $2.5 billion in January

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Fed: Card balances rose in January

Credit card balances were up in January, according to a federal goverment report released Thursday. 

It seems the recent federal government shutdown contributed to the rise, with impacted workers taking on more credit card debt to meet expenses. 

Consumer revolving debt – which is mostly based on credit card balances – rose by $2.5 billion on a seasonally adjusted basis to $1.058 trillion, the Federal Reserve reported in its G.19 consumer credit report. The annualized growth rate was approximately 3 percent.

Total consumer debt – which includes student loans and auto loans, as well as revolving debt – increased by $17 billion to $4.03 trillion, making for an annualized growth rate of 5.1 percent. 

See related: Card balances inched up in December, Fed reports

Continued wage growth to boost consumer spending

The American Bankers Association Economic Advisory Committee’s forecast for 2019 projects the current economic expansion will continue in 2019, but that growth will slow down to 2.1 percent. 

The group of 15 North American bank economists anticipates unemployment will reach the lowest level in 60 years, at 3.5 percent, by the end of the year. Average job growth is expected to slow to 160,000 a month, from 2018’s 200,000-per-month pace. The growth will also push up private sector average hourly wages 3.4 percent. 

For February, ADP Research Institute estimates the U.S. added 183,000 jobs. The ADP report, which came out ahead of the government’s official March 8 jobs numbers release, likely overstates the government’s numbers, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. 

In a March 6 e-mail, Shepherdson predicted the government would report – in a bit of a slowdown after the outsize January gains of 304,000 – job gains of 125,000 jobs for last month. That number is below the consensus expectation for 190,000 jobs. 

Meanwhile, the ABA committee sees growth in consumer spending of higher than 2 percent for 2019.

“Given the tight labor market, firms will be forced to pay up to hire,” according to Robert Dye, EAC chairman and Comerica Bank’s chief economist. “More jobs and rising pay should keep confidence elevated and consumer spending healthy.” 

Fed patience means credit card rates will likely rise more slowly

In recent Congressional testimony, Federal Reserve Chairman Jerome Powell noted that inflation continued to be muted in January, while the job market remains strong. This gives the Fed more leeway to be patient with interest rate hikes in 2019, after hiking four times in 2018. 

The national average credit card rate is at 17.64 percent, as of March 6. This rate has been on the rise, with the Fed’s benchmark interest rate rising 2 percent between the third quarter of 2015 and the third quarter of 2018. 

Recent decline in spending likely temporary

However, consumer spending was down 0.6 percent in December, according to the government’s Personal Incomes and Outlays report, which was delayed by the government shutdown. The government’s partial report for January, which only touched on income, showed a drop in disposable income of 0.2 percent, without factoring in inflation. 

In a March 1 article, Diane Swonk, chief economist at Grant Thornton, attributed the drop off in December spending partly to the government shutdown, and delays in payment of subsidies to farmers. And with inflation down to 1.7 percent in January, below the Fed’s target of a 2 percent rate, this gives the Fed more scope to be patient in 2019, Swonk expects. 

She anticipates that the consumer setback in January was due to “transitory factors,” and that the consumer mood has improved with the government’s reopening for business, and a stabilization of the markets. 

Indeed, the consumer sentiment index had risen to 95.5 for February, following the January number of 91.2, according to the Michigan sentiment index. Pantheon’s Shepherdson noted in a Feb. 15 statement that “reports of the death of the consumer have been greatly exaggerated,” and expects consumer sentiment will rise further in the coming months. 

Even then, he doesn’t see consumer spending growing as fast as the rise in sentiment might indicate, considering real growth in consumer after-tax income this year will be slow, with no further tax cuts and a stabilization in gas prices following a fourth quarter drop. Shepherdson sees a rise in consumer spending of 2.5 percent for the year.



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