Consumers are cautious about adding debt to their credit cards, as Bloomberg reports on the latest movement of the Federal Reserve’s G-19 report.
- S. consumer debt growth eased in February and was less than forecast as Americans tapped credit cards, signaling consumption remained stable early this year.
- Total credit climbed $15.2 billion from the prior month, missing the $17 billion median estimate of economists, following an upwardly revised $17.7 billion gain in January, Federal Reserve figures showed Friday. Revolving debt outstanding increased the most in three months while non-revolving credit growth slowed.
Bloomberg points out that consumer confidence remains high.
- While weaker than expected, data still point to a confident consumer. The University of Michigan’s March sentiment index advanced to the highest this year, though the Conference Board confidence measure was more muted.
The University of Michigan survey is a respected standard to measure consumer confidence in the United States. The actual report can be found here, where it explains:
- Consumer confidence rebounded in March to 98.4 from last month’s 93.8, slightly above the average of 97.2 recorded in the past 26 months.
- The March gain in the Sentiment Index was entirely due to households with incomes in the bottom two-thirds of the income distribution, posting a gain of +7.1 Index-points, while households with incomes in the top third fell by 1.1 Index-points.
- Middle and lower income households more frequently reported income gains than last month, although income gains were still widespread among upper-income households.
Mercator Advisory regularly reviews the Federal Reserve’s G-19 report, for trends in receivable growth and the mix of volumes. Something worth noting is that although depository institutions account for the lion’s share of revolving debt in the United States. Yet, there is a disparity in growth between top issuers and smaller issuers. Between 2014 and February 2019 credit union credit cards grew by 31.4%, outpacing depository institutions which grew by 24.3%.
The key number to watch, however, is the risk metric. One $5,000 write-off will void the revenue generated by almost 20 cardholder accounts.
The Delinquency Rate on credit cards for the top 100 US Banks is 2.58% while the Delinquency rate of those outside the top 100 banks was 5.73%.
The takeaway is this: growth is still healthy, though credit unions have outpaced banks in growing their credit card portfolios. But, delinquency outside top issuers deteriorated. It is likely a good time to trim back some growth, or at least tighten standards beyond the realm of top credit card issuers.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group