Consumer credit card balances shot up in May after tumbling the
previous month, according to new data from the Federal Reserve.
The Federal Reserve's monthly G.19 consumer credit report,
released Monday, showed a steep 11.2 percent rise in revolving debt
as consumers resumed charging to their cards. Revolving debt, which
in the report is made up almost entirely of credit card debt, rose
by $8 billion in May to $870.2 billion.
Many experts had predicted that card debt would rise. However,
"the size of the increase was a bit of a surprise," says Paul
Edelstein, director of financial economics at IHS Global
A rise in credit card debt is often a positive economic sign, in
that it may show consumers are confident enough to tackle more
debt. But this may be a temporary blip, experts said: The report
covers May, and consumers' hopes have been dampened since then by
reports of disappointing job growth.
"Consumers were still feeling pretty good in May, so it's not
surprising that they decided to take on some more credit card
debt," says Edelstein. However, "We know that consumer confidence
took a hit in June. The jobs reports have been terrible. The stock
market hasn't been doing very well." It's possible that "some of
the bad economic news took some time to catch up" to consumers, he
In the past 12 months' reports, credit card debt -- much like
the economy -- has bounced around, up seven months and down five.
This month marks the single biggest percentage increase in
revolving debt since 2007. That fluctuation makes experts doubt the
staying power of the latest surge. "I really suspect we're probably
going to see softer spending numbers this month and last and we're
probably going to see that on the revolving numbers, as well," says
The Fed's G.19 consumer credit report also looks at nonrevolving
debt, which includes auto loans, student loans and loans for mobile
homes, boats and trailers. Nonrevolving debt went up 6.5 percent to
trillion in May. Overall consumer credit -- the combination of both
revolving and nonrevolving debt -- also increased, by $17.1
billion. Total consumer credit jumped a sharp 8 percent in May, to
$2.57 trillion, the largest amount of debt since August 2008.
Consumers face an uncertain recovery
Consumers may be feeling slightly more optimistic for now. However,
they are facing significant economic headwinds and that could make
them think twice about spending more than they can afford to pay
back, say experts.
"There is a lot of uncertainty out there with regard to how the
economy is performing," says Keith Leggett, senior economist with
the American Bankers Association. "And that will kind of weigh on
consumers, especially with regard to their willingness to take on
The Labor Department announced Friday that the economy added
just 80,000 jobs in June, falling short of expectations for the
fourth consecutive month.
The unemployment rate, in turn, didn't budge. "The number of
unemployed persons (12.7 million) was essentially unchanged in
June, and the unemployment rate held at 8.2 percent," said the
department in a news release. It also revised its April and
May jobs figures, reporting that the economy added slightly more
jobs in May -- 77,000 -- than previously measured and added
significantly fewer jobs -- just 68,000 -- in April.
To get a sense of just how anemic those figures are, consider
this: The economy added 243,000 jobs in January and 227,000 jobs in
February. Add April, May and June figures together and it's only a
bit more -- 285,000 jobs.
Consumers' incomes did at least rise slightly in May, according
to the Commerce Department, giving some more room to charge to
their cards. Gas prices also fell sharply, allowing consumers to
spend that income elsewhere. "The gasoline index fell 6.8 percent,
its largest one month decline since December 2008," said the
Commerce Department in a news release.
That said, consumer spending was largely flat in May, according
to multiple reports. Some economists are confident, however, that
consumers will resume spending in the months ahead, which could
translate to bigger balances later on.
"The economy thus far is working like an old machine with many
fits, starts and even some sputtering," said the National Retail
Federation's Chief Economist Jack Kleinhenz in a statement
announcing slower retail spending in May. "Overall, though,
consumers are benefiting from the slow but steady decline in
gasoline prices, and we expect growth will resume and should pick
up through the fall."
Consumers continue to pay bills on time
Consumers have also gotten significantly better at paying their
bills on time, which economists say is another good sign. Late
payments on consumer loans, including credit cards, mortgages and
auto loans fell to their lowest level in five years in the first
quarter of 2012, according to the American Bankers Association's
2012 Consumer Credit Delinquency Bulletin.
"This is clearly an indication that consumers are doing a better
job managing their finances," said the association's Keith
However, he cautions, if the economy continues to deteriorate,
that could make it harder for them to pay their bills. That's
especially true, he says, since many consumers that survived the
Great Recession are facing a long-term economic slump with no real
safety net. "They are not prepared for the rainy day that may
come," says Leggett.
That said, consumers are unlikely to overcharge the way they did
before the recession, said Leggett. "The Great Recession kind of
changed behavior," he adds. It "really created a culture of
Leggett compares it to the Great Depression when consumers
turned thriftier for life after experiencing the worst economic
downturn in modern history. This time, he says, a new generation of
consumers may be similarly scarred and less likely to take on
Banks court new customers
As more consumers get comfortable with spending at least some of
their income on credit, banks are continuing to go after new
customers, according to the Ipsos Mail Monitor, which tracks credit
Although "all the major issuers cut back in April to a level we
had not seen in years," they resumed sending out a larger number of
offers in May, said Roy Persson, director of competitive tracking
services at Ipsos, in an email.
That said, few issuers changed the terms of their offers,
including on promotions. However, there were a few exceptions. For
example, "in May, we saw Discover bring back a 24-month balance
transfer period," said Persson. Most balance transfer credit cards
offer interest-free transfer periods of just six to 12 months,
according to CreditCards.com data.