Credit card debt grew moderately in September, as gas prices continued to decline. While inflation remained an issue impacting consumers, rising 8.2 percent over the year for September, gas prices were down 4.9 percent from August. This follows August’s month-over-month 10.6 percent downslide in gas prices.
Consumer revolving debt — which is mostly based on credit card balances — gained $8.4 billion on a seasonally adjusted basis in September, reaching $1.162 trillion, according to the Fed’s G.19 consumer credit report released Nov. 7.
Card balances have been growing in recent months as consumers combat inflation and load up their cards. Gas prices have especially impacted since consumers typically turn to cards to pay for gas. And outstanding card balances can rise at month-end if consumers pay off their balances later, whenever they are due.
In September, card balances rose 8.7 percent on an annualized basis, following August’s 18.1 percent leap and July’s 11.5 percent (revised) jump. For the third quarter overall, revolving debt grew 12.9 percent.
Total consumer debt — which includes student and auto loans, as well as revolving debt — gained $25 billion to touch $4.700 trillion in September. That’s a 6.4 percent seasonally adjusted annualized increase.
The Fed also reports that student loan debt rose to $1.768 trillion at the end of the third quarter, from $1.745 trillion at the end of the second quarter when the central bank last reported this data. And auto loan debt grew to $1.397 at the end of the third quarter, from the second quarter’s $1.366 trillion.
Equifax reports that card limits continue to rise
The rise in credit card balances in recent months has been aided by a rise in new cards issued by banks, which is the highest since 2011, according to a study by credit reporting agency Equifax. And total limits on these bank cards issued have also continued to grow (with the share of subprime growing steadily) and are above pre-pandemic levels.
According to Equifax, total credit card balances hit $916 billion in September (including both bank-issued cards and store-branded cards), a level that’s about the same as in December 2019. “The originations we saw go up through June were representative of the total growth we’ve been observing,” says Tom Aliff, risk advisor leader at Equifax. “With bankcards, we do expect continued growth, especially as we head into the holiday season.”
While credit limits on bank cards have been on the rise, those on retail-branded cards have stayed about the same since 2021. Consumers have been using more of their available credit pushing up utilization rates on credit cards. Even then, utilization rates are lower than they were prior to the pandemic. By consumer segment, Equifax finds that the subprime group is seeing a rise in card utilization.
Consumer expectations for spending decline
Despite the rise in card originations reported by Equifax, it seems consumers still see it as difficult to access credit, according to the New York Federal Reserve’s September survey of consumer expectations.
The share of consumers who see it as more difficult to access credit compared to a year ago remains at a high. This is likely the fallout of rising interest rates as the Federal Reserve continues to battle inflation. However, consumers feel more optimistic about their ability to access credit in the year ahead.
Consumer expectations for inflation are moderating, the survey finds. For the year-ahead period, median inflation expectations were at 5.4 percent. And for the three-years ahead period, consumers anticipated inflation of 2.9 percent.
Survey respondents’ average perceived probability of missing a minimum debt payment in the coming three months was 12.2 percent. And while consumers expect their household income to grow a median 3.5 percent (a high for the survey), their expectations for growth in household spending fell to 6 percent, from August’s 7.8 percent, which is the biggest monthly dip for this survey, the New York Fed reports.
On the labor market front, expectations for wage growth in the year ahead dipped to 2.9 percent. Average expectations that the U.S. unemployment rate will be higher in the year ahead dropped 0.9 percentage points to 39.1 percent. Consumers see the average expected probability of losing their job in the coming 12 months at 11.6 percent (up 0.5 percentage points). The mean probability of leaving a job voluntarily went up to 19.4 percent, led by those over the age of 60.
U.S job growth continues strong
The U.S. economy continued to add jobs in October, per the government’s jobs report for the month. While the unemployment rate rose to 3.7 percent (from September’s 3.5 percent), job growth was at 261,000. Job gains were boosted by the addition of 28,000 government sector jobs, as well as gains in healthcare, professional services, leisure and hospitality and manufacturing services sectors. Across other industries too, employers continued to add jobs.
Average hourly earnings for workers rose 0.4 percent to $32.58, gaining 4.7 percent over the year (down from September’s 5 percent rise). The government revised down the number of jobs added in August by 23,000 (to 292,0000. And a revision for September jobs took it up 52,000 to 315,000.
In his email commentary on the jobs report, Ian Shepherdson, chief economist, Pantheon Macroeconomics, noted that while the job market is softening, it has not corrected to the point of causing the Federal Reserve to moderate its interest rate tightening. “But if these trends continue, as we expect, markets will start to push the Fed – and especially Chair Powell – to rethink the idea of continued hikes next year,” Shepherdson says.
The economist doesn’t see a need for the Fed to do another 75 basis point rate hike in December, given the lag for monetary policy’s impact to be seen, and he anticipates a 50 basis point hike for the month, conditional on the data holding up.
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