Credit card balances dipped in April even as the economy continued to reopen, providing more avenues for consumers to stoke their pent-up demand. It seems consumers are still focused on paying down their card balances.
Consumer revolving debt â which is mostly based onÂ credit cardÂ balances â dipped $1.9 billion on a seasonally adjusted basis in April to $963.6 billion, according to the FedâsÂ G. 19 consumer credit reportÂ released June 7.
In April, credit card balances were down 2.4% on an annualized basis, following Marchâs revised 1.7% gain and Februaryâs 3.8% rise.
Card balances had taken a hit during the pandemic. They dipped below the $1 trillion mark in May 2020, for the first time since September 2017.
Total consumer debt outstanding â which includes student loans and auto loans, as well as revolving debt â gained $18.6 billion to rise to $4.237 trillion in April, a 5.3% seasonally adjusted annualized rise.
Consumers able to pay down credit card debt
Credit card debt decreased in the first quarter of the year, the Federal Reserve Bank of New York reports, dipping $49 billion, which is the second-largest quarterly decline in card balances, based on data going back to 1999. Credit card debt was at $770 trillion at the end of the first quarter.
As consumers continue to pay down debt, and with the decline in spending opportunities, credit card debt in the first quarter is down $157 billion from the end of 2019. And delinquency rates on credit card debt also dipped to 3.78% in the first quarter, from 5.31% for the first quarter of 2020, as government stimulus and forbearance programs helped consumers keep up with debt payments.
In the meantime, the American Bankers Associationâs credit card market monitor, based on input from the fourth quarter, reveals that 35.1% of cardholders are transactors, paying off their monthly balances in full. This is an all-time high for this figure, which rose 1.4 percentage points in the fourth quarter and has been rising for three quarters in a row.
The ABA also finds that the share of those who carried a card balance, or revolvers, was down one percentage point to 39.7%, falling below 40% for the first time, while the number of dormant accounts dipped 0.5 percentage points to 25.2%.
See related: Consumer spending statistics
More optimism about credit availability
Consumers are also more optimistic about their ability to get credit and also about expectations to get credit in the year ahead, based on the Federal Reserve Bank of New Yorkâs survey of consumer expectations for April.
However, they are more pessimistic about their ability to meet minimum debt payments, with the average perceived probability of missing a payment up to 10%, from Marchâs 9.6%.
Their median expectations for growth in household income in the year ahead is down to 2.4%, from 2.8%, with expectations for household spending growth also down to 4.6%, from 4.7%.
See related: Many consumers are still getting help with debt
Mixed outlook on labor market
On the labor market front, consumers see a 2.1% rise in wage growth at the median though they are more inclined to think that the U.S. unemployment rate will be higher in the year ahead. Although the average perceived probability of losing a job rose to 15%, consumers were also more optimistic about the likelihood of landing another job if they did lose their current one. And the average expected probability of leaving a job voluntarily was also up 2.4 percentage points to 19.1%.
The Bureau of Labor Statistics reported Friday that the U.S. economy continued to add jobs, with May gaining 559,000 jobs. March and April job numbers were also revised up. While the unemployment rate dropped to 5.8% for the month, from 6.1%, the number of those working or actively looking for work (the labor participation rate) also dipped to 61.6%, from 61.7%.
The leisure and hospitality sector added 292,000 jobs, leading the job gains. And average hourly earnings rose $0.15, or 5%, likely due to employers having to pay more as a result of constraints on labor supply, according to Ian Shepherdson, chief economist, Pantheon Macroeconomics.
In his daily email commentary, he noted, âThe lesson here seems to be either that employers have to pay more – and perhaps much more – Â in order to drag people into the labor force, or they have to wait until the forces which might be responsible for keeping people away from work fade.â
See related: Fed likely to maintain 0% rate through at least 2023
Economists see inflation risk skewed to upside
The American Bankers Associationâs economic advisory committee expects the economy to grow 7.2% in 2021, after adjusting for inflation, leading to strong job gains averaging 550,000 a month. This will cause unemployment to be at 5% by year-end, the economists anticipate. They expect inflation will rise to 3.5% by year-end and see the rise as largely âtransitory,â but believe âthe risks are skewed to the upside.â
Consumers responding to the NY Fedâs survey anticipate more inflation coming down the pike, with median inflation expectations for the year ahead up to 3.4%, from 3.2%. This is the highest inflation expectation rise since September 2013.