Card balances rose a moderate 2.4% in December, Fed reports

Credit card balances continued to grow in December, though consumers moderated their purchases after pushing forward a lot of holiday purchases to November.

Consumer revolving debt – mostly based on credit card balances – gained $2.1 billion on a seasonally adjusted basis in December, rising to $1.04 trillion, according to the Fed’s G. 19 consumer credit report released Feb. 7.

In December, card balances rose 2.4% on an annualized basis, following November’s whopping 22.8% (revised) gain and October’s 7.2% (revised) rise. Card balances continue to pick up after their pandemic-influenced dip.

Total consumer debt outstanding – which includes student and auto loans, as well as revolving debt – gained $18.9 billion to touch $4.43 trillion in December, a 5.1% seasonally adjusted annualized rise.

Revolving debt rose 6.6% in 2021, and total consumer credit 5.9%, the Fed reports.

Additionally, student loan balances outstanding dipped to $1.748 trillion at the end of the fourth quarter (from $1.750 trillion for the third quarter) and auto loan balances rose to $1.311 trillion (from the previous period’s $1.3 trillion).

Banks eased lending standards in fourth quarter

The Federal Reserve also reports that banks were more lenient with credit card applications in the fourth quarter, per the central bank’s January 2022 Senior Loan Officer Opinion Survey on bank lending practices.

On net, these banks saw greater demand for credit card loans during the fourth quarter, while they were easier with minimum credit score requirements and credit limits.

As for their lending outlook for 2022, banks expected, on net, that demand would rise for consumer loans. However, they expected the quality of credit card loans, both prime and non-prime, to decline.

Bank economists anticipate improved credit availability

In the meantime, the American Bankers Association reports that its headline credit index dropped to 63.6 in the first quarter, after a bigger slide in the fourth quarter. The above-50 reading indicates that bank economists surveyed expect credit market conditions (including credit quality and availability) to pick up in the coming six months.

The ABA’s consumer credit index also dropped to 64.6, but remains in positive territory. Even though economists anticipate improved consumer access to credit, 83% of them expect that consumer credit quality will either stay steady or improve in the next six months.

Sayee Srinivasan, ABA chief economist, observed, “Inflationary pressures, the Omicron surge, continuing supply chain constraints and expectations for higher interest rates have clouded the near-term economic outlook. However, overall credit conditions remain sound, and both consumers and businesses are well-positioned to drive economic growth this year.”

Consumers more optimistic about credit access

Consumers feel more optimistic about credit access compared to a year ago, according to the Federal Reserve Bank of New York’s survey of consumer expectations for December. More respondents than in November also expect that it will be easier to obtain credit in the year ahead.

On average, they saw their probability of missing a minimum debt payment in the next three months rise to 10.3%. However, at the median, they saw their household incomes growing 3.4%, a 0.2-percentage-point rise from November. This is the highest level for the survey, and it’s led by those educated to high school level or less. Expectations for household spending growth dipped to 5.5%, also led by those educated to no more than high-school level, and those making $50,000 or less a year.

On the labor market front, respondents saw, at the median, their expected earnings growth rise 0.2 percentage points to 3%. The average probability that U.S. unemployment will be higher a year from now dropped 0.9 percentage point to 35.2%. Respondents were more optimistic about holding on to their current jobs but less likely to voluntarily quit the jobs they hold. If they did lose their jobs involuntarily, they were more optimistic about landing new ones, with the average perceived probability of finding a new job rising to 57.5% (from 55.9% in November).

Upside surprise for January jobs

In January, the U.S economy added 467,000 jobs, the government reported. This surprised analysts, who had forecast a 125,000 gain, Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted in his daily e-mail commentary. Not only that, revisions to the previous three months resulted in an additional gain, on net, of 709,000 jobs for those months.

The unemployment rate edged up to 4%, from 3.9%, as more people entered the labor force, driving the labor participation rate up to 62.2% (from December’s 61.9%). The labor participation rate measures the proportion of working-age adults either working or actively looking for employment. Average hourly earnings rose 0.7% over the month and 5.7% from a year ago.

In online commentary, Diane Swonk, chief economist at Grant Thornton, said, “Employment was resilient in January, despite the disruptions triggered by the surge in Omicron infections. Acute staffing shortages going into the surge helped to buoy those gains as employers were more likely to hold onto seasonal hires when the pace of infections skyrocketed. Wages continued to move up and were dominated by gains in higher-wage jobs at the start of the year.”

Both Swonk and Shepherdson expect that the robust jobs report means the Fed will be more aggressive with rate hikes in 2022 to ward off the threat of inflation. Swonk looks to five rate hikes this year, and Shepherdson anticipates four, with a possibility for five.