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Card balances jumped 35 percent in March, per Fed report

Federal Reserve building
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Credit card balances continued to grow in March, keeping up February’s torrid pace. It seems consumer optimism grew, even as news about Russia’s invasion of Ukraine gained prominence.

Consumer revolving debt—which is mostly based on credit card balances—gained $31.4 billion on a seasonally adjusted basis in March. It’s now up to $1.097 trillion, according to the Fed’s G. 19 consumer credit report released May 6.

In March, card balances rose a whopping 35 percent percent on an annualized basis, following February’s revised 16 percent growth and January’s 11.8 percent gain.

Total consumer debt—which includes student and auto loans, as well as revolving debt—gained $52.4 billion to touch $4.539 trillion in March. That’s a 14 percent seasonally adjusted annualized rise.

For the first quarter, revolving debt grew at an annualized rate of 21.4 percent.

The Fed also reports that student loans outstanding rose to $1.761 trillion at the end of the first quarter, from the fourth quarter’s $1.747 trillion. And auto loans jumped to $1.335 trillion, from the previous quarter’s $1.314 trillion.

ABA sees second quarter deterioration in credit conditions

Credit conditions have deteriorated for the near-term for both consumers and businesses, according to the American Bankers Association’s credit conditions index for the second quarter.

Bank economists providing input for the index expect credit quality and availability to decline in the next six months, compared to conditions seen in the previous three quarters. This comes about as Russia’s invasion of Ukraine and the sanctions on Russia, along with China’s Covid-related shutdown, have heightened supply chain disruptions and added to inflation concerns.

And the ABA’s May 2022 monitor, based on credit card input from the fourth quarter, finds that consumers across all credit tiers increased their purchases 4 percent to 6 percent compared to the third quarter, even after adjusting for inflation.

ABA Chief Economist Sayee Srinivasan said, “While the U.S. economy is dealing with higher inflation and consequently rising interest rates, as evidenced by credit card debt as a share of disposable income, U.S. households’ balance sheets remain robust to help absorb shocks from these headwinds.”

Consumers concerned about paying bills

The ABA monitor finds that new account openings were up in the fourth quarter, led by subprime accounts. Average credit lines for new accounts also rose across all credit categories, led by prime and “super prime” risk tiers.

Also, the percentage of cardholders who pay off their monthly balances in full (transactors) remained at 36.3 percent. And the share of those who carry a balance (revolvers) rose to 40.1 percent. Dormant accounts were at 23.8 percent.

A financial literacy month survey by Equifax finds 48 percent of U.S consumers are concerned about paying their bills, compared to last year’s 29 percent. This is consumers’ top financial concern. And 34 percent are worried about their ability to live debt-free.

Consumers are also less optimistic about the outlook for 2022 than they were about the 2021 outlook, with 21 percent expressing optimism, down from 33 who were positive in 2021. Concerns clouding the outlook for consumers include the pandemic (53 percent), inflation (62 percent) and gas prices (54 percent).

In an effort to improve their credit scores, consumers are paying their bills on time at all times (65 percent) and also paying off debt (55 percent).

Short-term inflation expectations rise

The Federal Reserve Bank of New York’s survey of consumer expectations for March finds that consumers are anticipating a rise in inflation in the year ahead. (This rose to a median 6.6 percent, from February’s 6 percent.) However, for the three-years ahead period, the median inflation expectation dipped to 3.7 percent, from 3.8 percent.

Respondents were also less optimistic about their ability to access credit compared to a year ago. They were also more pessimistic about their ability to obtain credit in the year ahead. On average, the expected probability of missing a minimum debt payment in the next three months rose to 11.1 percent.

The survey also finds less optimism on the labor market front, with respondents anticipating that U.S. unemployment will be higher a year from now, with this average probability rising to 36.2 percent.

Economy continues to add jobs

In the meantime, the government reports that the economy added 428,000 jobs in April, while the unemployment rate stayed at 3.6 percent. The labor participation rate (measuring the proportion of working-age adults that are employed or actively looking for jobs) dropped to 62.2 percent though. All sectors added jobs, with the leisure and hospitality niche seeing big gains: up 78,000 jobs.

However, job gains for February and March were revised down, resulting in 39,000 fewer jobs for those months combined than previously reported.

In online commentary about the jobs report, Diane Swonk, chief economist, Grant Thornton, noted, “The labor market remained strong in April. That is a blessing and a curse. It means more opportunities for workers but the tides have turned and the resilience of the labor market is now adding to inflationary pressures. That is eroding living standards. Fed Chairman Powell was hopeful that he could derail inflation without a ‘significant’ increase in unemployment. Hope is not the same as reality.”