Credit card balances increased in February as well retail sales increased by 0.3%. Despite ongoing concerns about the spread of the Omicron variant, it seems that consumers were ready to shake off the restrictions imposed by Covid.
Recycled consumer debt – which relies heavily on credit card balances – earned $ 18 billion on a seasonally adjusted basis in February. It now stands at $ 1.063 trillion, according to the Fed G. 19 consumer credit report released on April 7th.
In February, card balances rose 20.7% year-on-year, following the revised 4% gain in January (previously reported as a drop) and the updated 4.1% rise in December.
Total consumer debt – which includes student and car loans, as well as recyclable debt – earned $ 41.9 billion, up from $ 4.482 trillion in February. This is a seasonally adjusted annual increase of 11.3%.
Credit card interest rates also rose to 14.56%, from 14.51% for the fourth quarter of 2021, according to the Fed. For consumers who calculated interest because they had a balance, banks charge interest at 16.17%, up from 16.44% in the fourth quarter.
Consumers are less optimistic about access to credit
Even with the significant increase in consumer debt, the Fed of New York survey of consumer expectations for February finds that consumers are less positive about their ability to access credit, compared to a year ago. They are also less optimistic about their ability to borrow next year than they were in the January survey.
The average expected probability of losing a minimum debt payment over the next three months fell by 0.8 percentage points to 9.2%, which is low for the survey.
In its study on “credit card late payments”, the Office of Consumer Financial Protection found that late credit card charges, which are usually estimated for the lack of a minimum payment by card, were gradually increasing before the pandemic, reaching the highest level. of $ 14 billion in 2019 Reduced to $ 12 billion in 2020, given all efforts by pandemic relief and tolerance by card issuers. And it was on the rise again in 2021.
The average late payment penalty per incident paid by a consumer on major issuer cards was $ 26 in 2019. Those who lost another payment in the next six billing cycles after a previous loss paid an average late payment commission of $ 36. Those with high-risk and “deep-risk” ratings were more likely to be charged with recurring late payment charges, compared with those with better credit.
This meant that the average “deep subprime” account faced $ 138 in arrears in 2019, compared to $ 11 for the standard “superprime” account. Also, black neighborhoods and low-income neighborhoods were disproportionately affected by late fees.
The US economy continued to add jobs in March
Respondents to the NY Fed survey expect their household spending to increase by 6.4 percent next year, on average, a new high for the survey. Respondents in all incomes, education and age groups were optimistic about this aspect. This is the case even when they expect their household incomes to increase by only 3.2%.
They expect their profits to increase by 3 percent, on average, next year. Respondents are also more optimistic on the labor market front, seeing the possibility of a higher US unemployment rate next year at 34.4 percent on average.
In its March employment report, government reports that the economy added 431,000 jobs.
The unemployment rate fell to 3.6% from 3.8% in February, while the participation rate rose to 62.4%. Even then, employment is still down 1 percent from its peak in February 2020.
The leisure and hospitality sector continued to gain jobs (112,000), along with the retail sector (49,000), a sign of recovery in these two sectors that had been badly affected by the pandemic.
Average hourly earnings rose 0.4 percent during the month and 5.6 percent during the year. Job earnings for January and February were also revised, resulting in additional earnings of 95,000 jobs for those two months.
The Fed is likely to raise 50 basis points in May
In online commentary, Diane Swonk, chief economist at Grant Thornton, noted, “Demand for workers continued to outstrip supply in March. Wages accelerated even as more people returned to the labor market. These gains, combined with another sharp uptrend in last month’s data, underscore the strength of the job market. “These changes will reinforce the Fed’s need to focus more on combating inflation, which will get worse before it improves.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a daily email comment that this unemployment report would not lead the Federal Reserve to withdraw from the 50 basis point hike at its next meeting in May.
However, if the labor market “normalizes”, with wage increases and job participation not growing rapidly, the Fed “will not have to cross the sea this year”, with 50 basis points increases in its next meetings, he said. Shepherdson.
The bottom line
Consumers continue to add to their credit card balances. As the Fed is determined to tackle inflation and start raising interest rates, consumers will need to carefully manage their credit card portfolio. If you have a balance, make plans to repay it, as variable interest rates are likely to increase.