Fed Report Reveals Steady Growth in Credit Card Balances Throughout December
Despite a general cooling down of inflation, consumer credit card debt in the US continued to grow in December, though at a slower pace compared to previous months. Experts suggest that the dip in growth rate could be attributed to heightened holiday shopping and increased spending in November.
Consumer revolving debt — mostly based on credit card balances — rose by $7.2 billion on a seasonally adjusted basis in December, reaching $1.196 trillion, according to the Fed’s G.19 consumer credit report released Feb. 7.
In December, card balances rose 7.3 percent annually, following November’s robust 15.6 percent (revised) jump and October’s 12.7 percent increase.
These large jumps in consumer debt are significantly related to inflation, which was at its highest in four decades in the past year but has been cooling down in recent months. For December, inflation moderated to 6.5 percent over the year, following November’s 7.1 percent gain.
US Consumer Debt Climbs Higher, Reveals Latest Data
Card balances have been growing for months as consumers battling inflation turned to their credit cards.
Gas prices had a big impact in 2022, though they have cooled off in recent months. And the government’s reported outstanding card balances can rise at the end of the month if consumers pay off their balances later.
Total consumer debt — which includes student and auto loans, as well as revolving debt — increased by $11.6 billion according to the Fed report, reaching $4.775 trillion in December. That’s a 2.9 percent seasonally adjusted annual increase.
The Fed also reports that outstanding student loan debt dipped to $1.757 trillion at the end of the fourth quarter, from the third quarter’s $1.761 trillion. And auto loan debt rose to $1.415 trillion, from $1.397 trillion.
Growing Credit Card Debt
Credit card balances for bank cards rose to a high of $931 billion in the fourth quarter, according to a TransUnion report, a jump of 18.5 percent over the year, as consumers contended with inflation.
The growth was led by a rise in subprime (19 percent) and near-prime (13.8 percent) consumer balances. TransUnion defines these consumers as people with credit scores lower than 660.
Balances on private-label cards, or branded cards issued for use at specific outlets, grew to $131 billion, as more consumers with low credit scores were granted these cards.
New bank cards issued also rose to a record 21.6 million in the third quarter, which resulted in a total of 202 million consumers with credit card access. New cards issued to Gen Zers, in particular, rose 18.8 percent. As this younger generation turned more to cards, their balances went up 64 percent in the fourth quarter, from a year ago.
Total credit lines offered on bank-issued credit cards rose by 9.2 percent to $4.3 trillion, and total utilization of these cards grew to 21.5 percent.
Delinquencies of 90 days or more were 2.26 percent in the last quarter of 2022, up from 1.48 percent one year ago. However, delinquencies are still holding at the level they were at just before the pandemic.
Consumers continue to be impacted by rising prices on the heels of the Fed’s rate hikes, which will continue this year, said Michele Raneri, TransUnion vice president, of U.S. research and consulting, in the study’s press release. According to her, until the Fed is satisfied that its cure has been effective and slows down its rate hikes, “we fully expect consumers to continue to look to credit products such as credit cards, HELOCs, and unsecured personal loans to help make ends meet and put themselves in stronger financial standing moving forward.”
New Report Warns of Weaker Consumer Credit Conditions in the Coming Months
Looking ahead to 2023, the American Bankers Association expects that credit conditions will weaken over the coming six months as the economy cools down on the heels of the Fed’s inflation-fighting measures.
According to the trade group’s credit conditions index, based on input from ABA’s economic advisory committee (made up of bank economists), consumer and business spending will be weaker in the first quarter compared to the 2022 fourth quarter. This may heighten the risk of stagnating growth or a recession. The economists expect that consumer credit quality (meaning the number of more creditworthy consumers seeking credit) will decline more than the availability of consumer credit. However, both of these parameters will weaken.
Lenders are preparing for increased financial stress among consumers and businesses this year, said ABA Chief Economist Sayee Srinivasan in a statement on the index. “At the same time, recent news on GDP growth, consumer spending, and inflation are encouraging and job growth remains robust, suggesting that a soft landing is still possible.”
US Consumers Optimistic About Greater Credit Availability in the Coming Year
However, consumers surveyed by the New York Federal Reserve bank for its December survey of consumer expectations believe credit will be more easily accessible in 2023. Fewer respondents expect difficulty obtaining credit in the year ahead than did in the NY Fed’s November survey. Still, the share of consumers who say credit is difficult to obtain remains at a high level compared to a year ago.
Consumers are also more optimistic about making their minimum debt payments—those expecting to miss a payment dropped by 0.4 percentage points month over month, to 11.4 percent.
More broadly, consumer respondents see inflation falling to 5 percent, on the median, but expect that their household income will grow 4.6 percent and spending to rise 5.9 percent in the coming year.
Strong jobs growth in January
The optimism of the NY Fed survey respondents is borne out by the January jobs numbers. The government reported robust job growth of 517,000, with the unemployment rate dipping to 3.4 percent.
The job gains were broad-based across industries. The leisure and hospitality sector added 128,000 jobs and the temporary help sector started to add jobs again, after shedding jobs for two months. Average hourly earnings rose 0.3 percent for the month, and gained 4.4 percent over the year, down a little from December’s 4.8 percent gain.
Economists expect that the robust job gains will induce the Fed to remain in its interest rate tightening mode and continue to slow down the economy.
“The gains in employment we saw in January reflect labor hoarding and are a challenge to the Fed,” Diane Swonk, chief economist, of KPMG US, noted in a blog post. “Consumer demand and inflation could very well accelerate at the start of the year, after cooling in late 2022. That is what the Fed was attempting to avoid. This will force the Fed to at least reach its target of 5.25 percent in 2023 and hold it there the entire year.”