Fed reports card balances rose $6.4 billion in March

Credit card balances rose in March, as economic improvement and the economy’s gradual reopening up boosted consumer confidence and likely had a positive impact on consumer spending.

Consumer revolving debt – which is mostly based on credit card balances – rose $6.4 billion on a seasonally adjusted basis in March to $980.4 billion, according to the Fed’s G. 19 consumer credit report released May 7.

In March, credit card balances gained 7.9% on an annualized basis, following February’s 10% gain and January’s steep 10.6% decline.

Card balances had been growing before the pandemic hit. They dipped below the $1 trillion mark last May, for the first time since September 2017.

Total consumer debt outstanding – which includes student loans and auto loans, as well as revolving debt – gained $25.8 billion to rise to $4.241 trillion in March, a 7.4% seasonally adjusted annualized rise.

The Fed also reported that student loan debt outstanding was at $1.736 trillion at the end of the first quarter, from $1.707 trillion at the end of the 2020 fourth quarter. And auto loan debt had jumped to $1.234 trillion during the first quarter, from the fourth quarter’s $1.224 trillion.

Banks were lending more leniently in first quarter

In its April Senior Loan Officer Opinion Survey of bank lending practices, based on lending activity in the first quarter, the Federal Reserve finds that banks were more lenient on credit card lending during this period. However, demand for credit card loans did not change compared to the previous quarter.

About 30% of the responding banks reported that they had eased their standards for credit card lending. This included aspects such as lowering the minimum required credit score to be approved for a credit card loan and hiking up credit limits.

However, compared to the standards they had prior to the pandemic, loan officers have become stricter about standards for credit card lending, particularly for those who are not prime consumers. While large banks have tended to tighten their standards across the credit spectrum, small banks were more inclined to tighten standards for those in the nonprime category.

More larger banks put in tighter standards for riskier borrowers, including lower credit limits, than eased them. Small banks were more inclined to hike up credit limits.

See related: Delinquencies fell in the pandemic. Will it last?

Consumers more optimistic about credit access

Consistent with the senior loan officer opinion survey’s finding of easing credit in the first quarter, the Federal Reserve Bank of New York reports that fewer consumers are perceiving that it’s harder to access credit in March than it was a year ago. In its March survey of consumer expectations, the New York Fed finds that fewer consumers are also expecting that it will be harder to access credit in the year ahead.

Consumers are also more optimistic that they will be able to make their minimum debt payments due in the next three months, with the average perceived probability of missing these payments due at 9.6%, which is below its pre-COVID level.

Expectations for household spending were also up, with consumers anticipating, at the median, household spending would grow 4.7%, up from February’s 4.6%. This comes about as consumers also expect their household incomes to grow 2.8% at the median, a 0.4-percentage-point increase. This is the highest level since January 2020.

See related: Poll shows many parents have helped adult children financially since 2020

Inflation expectations rise

Survey respondents are also seeing more inflation pressure coming. At the median, inflation expectations were up 0.1 percentage point to 3.2% in the year ahead and 3.1% for three years down the road. This is the highest level since 2014 for both these periods.

Inflation expectations were boosted by expectations for home price rises, particularly by consumers in the West and Midwest regions. Expectations for a rise in gas prices a year ahead was at a series high of 9.9%, and rents are expected to jump 9.3% in the year ahead, which is also a high for the series.

However, expectations for earnings growth were down 0.2 percentage points to 2%. More consumers anticipate that unemployment will be down in the year ahead, with 34.4% on average anticipating higher unemployment, compared to 39.1% in February. This is also the lowest level since the pandemic began.

Fewer consumers expect to lose their jobs in the year ahead, with the average probability of this outcome down to 12.8%, from February’s 14.2%. Those with household incomes of less than $50,000 led this decline. However, people were also less likely to voluntarily leave their jobs.

See related: Fed maintains 0% rate at April 2021 meeting

U.S economy continued to add jobs in April

In its jobs summary for April, the Bureau of Labor Statistics reported that the economy added 266,000 jobs (with private-sector jobs up 216,000) while the unemployment rate ticked up to 6.1% (from March’s 6%).

While there were strong job gains in the leisure and hospitality sector, the retail sector continued to shed jobs. The temporary help sector, which serves as a leading indicator for job creation, was also down 111,000 jobs. Job gains for February and March were revised, with February’s job numbers revised up to 536,000 jobs (from 468,000) and March numbers revised down to 770,000 (from an initial 916,000) resulting in a decline in 78,000 jobs created for those months.

Commenting on the jobs report, Leslie Preston, senior economist at TD Economics, noted in online commentary, “Economists generally don’t like to put too much stock in one month’s number, and perhaps it was optimistic of us to assume the sort of massive gains seen in March would continue back-to-back. This sort of stop-start pace of hiring means the job market recovery could be more laborious than hoped.”

Source: creditcards.com