January 13, 2021

Credit card balances slightly dipped in November, as the COVID pandemic fallouts continued, and with the government continuing to wrangle about a second round of fiscal stimulus measures.

Consumer revolving debt – which is mostly based on credit card balances – was down $700 million on a seasonally adjusted basis in November to $978.8 billion, according to the Fed’s G. 19 consumer credit report released Jan. 8.

In November, credit card balances were off 1% on an annualized basis, after October’s 6.7% drop, which came on the heels of September’s 3.2% annualized gain.

Total consumer debt outstanding – which includes student loans and auto loans, as well as revolving debt – continued to grow and rose $15.3 billion to $4.176 trillion in November, a 4.4% annualized gain.

Card balances had touched an all-time high in February 2020 before the coronavirus pandemic started impacting consumer spending and bank lending. They dipped below the $1 trillion mark in May, for the first time since September 2017.

The Fed also reports that interest rates on credit cards were at 14.65% in November, with the rates on cards that are assessed interest (since they carry a balance) at 16.28%.

See related: Paying with credit is getting more expensive in the pandemic

Consumers expect household spending to rise

Consumers expect their household spending at the median to grow 3.7% in the year ahead, the highest in more than four years – even though they don’t anticipate much growth in their income (2.1%) or earnings (2%) – according to the New York Fed’s survey of consumer expectations for November.

Moreover, they are less optimistic about their household financial situation in the year ahead, with more of them expecting it to decline, and fewer consumers expecting an improvement.

Even then, more respondents are optimistic about their ability to access credit in the coming year, expecting it will be easier. However, the mean probability of missing a minimum debt payment in the next three months rose by 1.6 percentage points to 10.9%. Even then, this is still below its 11.5% average for 2019.

Less cheer on labor market front

On the labor market front, more consumers expect that the U.S. unemployment rate will be higher in the year ahead, with the average probability of this outcome rising to 40.1% in November, from October’s 35.4%.

However, they were less pessimistic about the prospects of losing their jobs, with this probability down to 14.6% on average, from October’s 15.5% (but still above the 2019 average of 14.3%).  Those above the age of 60 and those without a college degree were more optimistic about holding on to their jobs.

The respondents were less likely to voluntarily leave their jobs, with the mean probability of this down 1.3 percentage points to 16.6% (a low for the survey). Those 60 and older were at the forefront of this decline. However, respondents on average were more optimistic about the prospects for landing a new job if they lost their current ones.

In the meantime, the government reported that the economy shed 140,000 jobs in December, and the unemployment rate remained at 6.7%. The jobs lost were mostly in the sectors hard hit from the pandemic, with closures impacting the leisure and hospitality sector, as well as private education jobs.

The retail sector added jobs to aid holiday shopping, mostly in warehouses (which benefit from e-commerce) and superstores.

Although average hourly earnings for private sector employees rose $0.23, this is mostly because of the loss of lower-paying jobs in the leisure and hospitality sector, which tilted the average wage for the employed workers to the upside.

In online commentary, Diane Swonk, chief economist at GrantThornton, noted, “The silver lining to a bad overall jobs report is that the losses were concentrated in sectors that are most sensitive to COVID. Many of those jobs will come back once we get to herd immunity. The challenge is getting there, given the slow rollout of vaccines and poor uptake in some areas.”

Given that it will take a while to more fully open the economy, she is in favor of “aid today and another tranche once the new administration takes office.”

See related: Second stimulus deal provides $600 per individual

Application rates for credit cards plunged on pandemic impact

The New York Fed also reported in its credit access survey, which is conducted every four months as part of its survey of consumer expectations, that most credit applications and acceptance rates fell sharply after last February. Mortgage credit was the exception to this.

For credit cards, the application rate was off a steep 10.6 percentage points since February to touch a survey low of 15.7%. This decline impacted all age groups and credit score categories. Applications for credit card limit increases dropped 6.6 percentage points to 7.1% between February and October, another series low since the survey began in October 2013. The decline was spread across all ages and credit score categories.

Consumers applying for credit cards were also subject to steep rejection rates, with this rate rising 11.6 percentage points from February to touch 21.3% in October. Those looking for higher credit limits also were rejected about 37% of the time, from about 25% of the time in February.

No wonder consumers said they were less likely to apply for a credit card or credit limit increase in the next 12 months, with these figures falling 36% and 34% on average since February 2020. Those with credit scores above 680 led this decline.

Source: creditcards.com