Credit card balances increased in July: Fed

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Consumer credit card debt moderated in July as consumers felt some relief on the inflation front, with gasoline prices falling and inflation unchanged from June levels.

Consumer revolving debt — which is primarily based on credit card balances — gained $10.9 billion on a seasonally adjusted basis in July, reaching $1.14 trillion, according to the G Consumer Credit Report. .19 issued on September 8.

It has been climbing for some time as inflation-fighting consumers have had to shell out more money to buy goods. Consumers typically use their credit cards to pay for gas, which is likely a factor behind the steady rise in card balances in recent months. And outstanding balances can increase at the end of the month if consumers pay their card balances later when they are due.

In July, card balances rose 11.6% on an annualized basis, following June’s (revised) 16.8% jump and May’s 8% gain.

Total consumer debt — which includes student and auto loans, as well as revolving debt — rose $23.8 billion to $4.644 trillion in July. This is a seasonally adjusted annualized increase of 6.2%.

Subprimes lead account openings in the first quarter

The American Bankers Association August 2022 Credit Card Market Monitorwhich is based on credit card data from the first quarter of the year, finds that compared to the first quarter of 2021, purchases have fallen by 13% to 17%, inflation and the recovery from the recession caused by the pandemic having boosted consumer spending.

Outstanding credit card debt as a percentage of consumer disposable income reached 4.72% in the first quarter, but remains below its pre-pandemic level of 5.42%.

The share of cardholders who carry a monthly balance, or revolvers, rose to 40.9%, while the share of those who paid off their monthly balance fell to 35.5%.

New account openings increased 6.4% year on year, driven by subprime account openings. Even then, new account creation remains 17% below its pre-pandemic levels.

Average credit lines for new accounts increased across all consumer risk categories, led by prime and super-prime accounts. Across all accounts, average lines of credit also increased for prime and “super-prime” accounts, although average lines of credit for subprime accounts fell 0.2%.

Access to credit improved earlier in the year

Lenders continued to offer better access to credit card loans in the first half of the year, according to TransUnion credit industry quarterly report for the second trimester. An increase in lending to “non-preferred” borrowers has also led to a record increase in the number of credit card accounts. For the second quarter, the number of consumers with access to a credit card increased to 161.6 million compared to 153.3 million for the second quarter of 2021.

“We are seeing lenders offering more access to credit to unprivileged consumers, some of whom are new to credit,” said Michele Raneri, vice president of US research and consulting at TransUnion.

She added: “This is a welcome development as more consumers gained access to credit at a time when high inflation weighed more heavily on their wallets. While delinquencies typically rise after a period of more unpreferred borrowers getting loans, delinquency rates mostly remain at or below pre-pandemic levels, especially for cards and personal loans.

The number of general purpose credit cards hit the 500 million mark at the end of the second quarter. This jump was led by Generation Z, with creations for this age group up 31.6% year-on-year.

Total credit card balances for subprime borrowers increased by 51.7% during the year, which is a record high.

Moderate inflation expectations

Meanwhile, the Federal Reserve Bank of New York consumer expectations survey for July finds that median inflation expectations for the year ahead, at 6.2%, and for the next three years, at 3.2%, were down from 6.8% and 3.6 % of June, respectively.

Perceptions about access to credit have deteriorated, with more consumers finding it difficult to access credit today compared to a year ago. They were a bit more optimistic about their ability to get credit in the coming year.

Their average perceived likelihood of missing a minimum debt payment over the next three months dropped to 10.8%.

Consumer expectations that the employment rate will be higher in the coming year have fallen, on average, to 40.2%.

Employment continues to grow

The U.S. economy added 315,000 jobs in August, according to the government employment report, with an unemployment rate reaching 3.7% (compared to 3.5% in July). Employment gains were broad-based and occurred in almost all sectors.

The increase in the unemployment rate is likely related to an increase in the participation rate to 62.4%, from 62.1%, as more working-age adults were working or actively looking for work (meaning that they would be officially classified as unemployed).

Job gains for June and July were revised down to 293,000 (from 398,000) and 526,000 (from 528,000), respectively.

The average hourly wage of workers rose 0.3% during the month to reach $32.36.

In his daily email commentary, Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that the Fed would welcome higher labor participation rates, which should slow wage growth.

And Diane Swonk, chief economist at KPMG US, noted in a blog post, “The labor market is still strong, especially from the Fed’s perspective. Today’s data may allow the Fed to slow the pace of rate hikes from 75bps to 50bps in September, but does not change its resolve.

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