Credit card balances were down in June, pulling back from a strong upward surge the month before, despite an increase in consumer spending and general improvement in the economic climate.
Revolving debt, which is mainly made up of credit card balances, fell 3.8 percent in June, on an annualized basis, a far cry from May's revised 9.1 percent increase, the U.S. Federal Reserve said Wednesday in its G.19 consumer credit report . The figures are adjusted for seasonal variations.
The amount of revolving debt was $853.6 billion, compared with a revised $856.3 billion in May , when a one-month surge broke through what had been a holding pattern of essentially flat credit card balances since the end of 2012.
"Up until May, we had not seen a lot of growth in revolving credit," said Richard Moody, chief economist for Regions Bank. "It doesn't necessarily mean consumers have become less disciplined -- maybe they have more capacity."
During the recession and slow growth period that followed, household balance sheets have grown stronger, as consumers kept their card balances in check and banks wrote off billions of dollars in uncollectible debts. Credit card balances remain well below their December 2008 peak of $1 trillion.
The Fed's broader figure for consumer debt, which adds car loans and student loans to the revolving debt total, was $2.8 trillion in June, up an annualized 6 percent for the month, seasonally adjusted.
Gains in income, employment
Consumers had more money to spend, as personal income rose 0.3 percent, or $45.4 billion, according to the U.S. Commerce Department's Bureau of Economic Analysis. Personal consumption spending increased 0.5 percent in June.
Continued gradual improvement in economic fundamentals provided the backdrop for consumption and credit card spending. GDP -- the economy's output of goods and services -- grew at an annual rate of 1.7 percent in the second quarter, somewhat faster than the 1.1 percent rate logged in the first quarter, which was revised downward.
Modest improvement in the job climate came in step with the slow economic growth. The July jobless rate of 7.4 percent was down modestly from June's 7.6 percent. Over the past year, the number of people without work has fallen by 1.2 million, according to the Labor Department.
Since the recession, banks have kept their credit standards on credit cards high, but there are signs that their grip on the vault door is easing. Nearly 20 percent of banks polled in the Fed's senior loan officer survey said they were more liberal with credit limits on cards during the second quarter, a large jump that suggests banks are starting to warm up toward card borrowers in general.
Responsible consumers keep defaults low
All signs say consumers continue to use cards responsibly after default rates spiked during the recession. The American Bankers Association reported in July that card delinquencies in the first quarter hit their lowest levels in 22 years. Only 2.41 percent of card accounts were 30 days or more overdue, compared to the 15-year average delinquency rate of 3.87 percent. And the credit bureau Experian said the average card balance in the second quarter was $3,831, down 1.3 percent from a year earlier.
The low interest rate climate maintained by the Fed has provided stability for card-carrying consumers, as issuers have held their average rates on new card offers around the 15 percent mark.
Credit markets have been rocked by fears that the Fed will begin tapering its purchases of Treasury securities in September, putting upward pressure on long-term interest rates. However, the short-term rates that influence credit card finance charges will remain at their near-zero levels for months to come, analysts say. Moody said he would not be surprised if the Fed modified its language about unemployment thresholds at its September meeting to provide more flexibility to hold short-term rates at low levels via its target federal funds rate, the overnight rate on loans banks make to each other to meet reserve requirements. The Fed's rate-setting committee has said it wants to see the unemployment rate improve to 6.5 percent before increasing the federal funds rate, a threshold that economists expect to be reached in mid-2014.
"If they do vote to taper (securities purchases), they'll emphasize that the federal funds rate is another thing entirely," Moody said.