Credit card balances rose slightly in February as the economy
added jobs and consumers stepped up their spending, ahead of
concerns about a spring economic slowdown that began to take hold
Revolving debt, which is chiefly made up of credit card
balances, rose $500 million in February, following January's
$1.7 billion increase, the U.S. Federal Reserve said in its latest
G.19 consumer credit report
The amount of outstanding revolving debt was $848 billion,
compared with a revised $847.5 billion in January.
Overall consumer debt, including cards plus auto loans and
student loans, rose $18.2 billion to reach $2.8 trillion in
February, compared to $2.78 trillion in January.
"Clearly the stock market is up and home prices are up," said
Jim Johannes, director of the Puelicher Center for Banking
Education at the University of Wisconsin. "That makes households
more comfortable about spending." The S&P 500 was on an upward
trajectory through the first quarter and reached a new record by
the end of March, besting its previous peak reached in October
2007. Higher stock prices don't necessarily put more dollars in
consumers' pockets, but the swelling numbers on mutual fund
statements increase confidence about spending.
Mixed backdrop for card spending
The February consumer credit figures came against a backdrop of
improving economic fundamentals that month, but concerns are rising
about the looming impact of federal budget cuts and a sharp
slowdown in job creation in March.
The sequester, or automatic cuts in spending levels enacted as
part of a debt-limit deal, began March 1. Cuts of $85.4 billion are
scheduled for 2013, mainly in discretionary defense and domestic
spending. The Congressional Budget Office projects that the
the economy 750,000 jobs this year
. Federal workers are just beginning to face furloughs under the
sequester, as departments slim down to meet cuts of 7.9 percent in
defense and 5.3 percent in domestic discretionary spending.
"If you think about the number of people who are going to take
cuts, what are they going to do -- maybe load up on debt," said
Dennis Moroney, former research director at CEB TowerGroup.
Furloughed workers may resort to tapping their credit cards after
the cuts take effect, he added.
"I think the American consumer would like to see more activity
and compromise coming out of Washington," Moroney said. The
automatic cuts, put in place because a compromise for more gradual
deficit reduction could not be reached, have raised fears of
another spring slowdown in economic growth, which would repeat the
pattern of the past two years.
On Friday, the government announced weak job creation numbers
for March, increasing worries of a spring slowdown. The economy
created 88,000 nonfarm jobs in March, down sharply from a revised
268,000 in February. The unemployment rate managed to edge down, to
7.6 percent from 7.7 percent, but a reduction in the number of job
seekers contributed to the lower jobless rate.
"A lot of people have dropped out of the work force," Johannes
said. Analysts said the single month of results may not indicate a
trend. However, the impact of the sequester is probably not to
blame for the weak job creation, as furloughs are just beginning.
So hiring will face even greater headwinds in the months to
The job report marks a reversal from February, when the labor
picture and other economic measures were improving. In addition to
strong February job growth, consumers saw an
of 1.1 percent, according to the U.S. Department of Commerce.
Consumer spending during the month was up $77.2 billion, or 0.7
percent. That represented an acceleration from January, when
consumer spending rose about $41 billion. "Seasonality comes into
play as we get into spring," Moroney said, and shopping for warm
weather gear gets under way.
Analysts will be watching closely whether seasonal consumption,
plus hiring in warm-weather industries such as construction, will
outweigh the trend toward slower job creation seen in March --
especially as the impact of the sequester cutbacks come into
Fed: Card balances rise in January
Fed stays the course on interest rates