Consumer Payment Card News

Credit Card Bubble Swells Fueled by Eazy Credit & Spending Frenzy

Credit Card Bubble

A credit card bubble is quickly swelling and perhaps mirroring consumer behavior of ten years ago, shortly before the Great Recession. U.S. revolving credit, mostly credit card debt, made a sharp rebound for the second consecutive month, jumping by an annual growth rate of 8.2%, after
surging 7.9% in April, in the wake of a 2.3% YOY (year-on-year) decline in March. The YOY gain is the highest monthly gain in more than five years.

For April and May, Americans added $14.2 billion in consumer revolving debt (97% credit card debt), with a total increase of $18.2 billion for the first five months of 2019, according to tabulations by CardData.

The sharp increase in both months validate the pent-up credit demand created in the first three months of 2019 including bad weather, government shutdown, trade wars with tax tariffs, and uncertainty with the overall direction of the economy along with interest rates.

Strong jobs report, retrenchment of trade policies and the possibility of a cut in short-term rates may be playing a role in the second quarter explosion in consumer revolving credit. Additionally, the fear of coming higher retail prices as tariffs take effect, may be fueling higher spending by stocking up.

Historically, the second quarter of the year (April-June) is stronger than the first quarter as the impact of the holiday shopping season wanes. However, this year U.S. consumer credit has been nothing short of wacky in the first five months and may remain wacky for the entire year, notes Robert McKinley, Senior Analyst of CardTrak, CardData, and CardFlash.

U.S. Consumer Credit

The YOY growth rate of consumer revolving debt for May posted at +8.2%, compared to a revised 7.9% YOY gain for April, and a revised 2.3% YOY decline for March, according to figures from the Federal Reserve.

On a quarterly basis revolving consumer credit grew at an annual revised rate of 1.5% in the first quarter of 2019, compared to a revised annual rate of 0.7% in the first quarter of 2018.

Looking at U.S. revolving consumer credit, on an annual basis, the revised growth rate for 2018 was 3.1%, compared to 5.6% for 2017; 6.8% in 2016; 5.4% for 2015; and 3.9% for 2014. The annual growth rate for 2019 may very well end around 3.6% YOY, according to analysis by RAM Research.

Total revolving consumer credit outstandings stood at $1071.7 billion for May, compared to a revised $1064.5 billion for April, and a revised $1057.5 billion for March.

Non-revolving credit increased at an annual rate of 3.9% in May. Total consumer credit, at the end of May, stood at $4087.9 billion, after crossing the $4 trillion milestone in November.

U.S. Consumer Debt Ratios

Financial obligations and debt service ratios are both up six ticks, respectively in the first three months of this year, compared to the same period one-year ago. However, there will likely be more upticks in the face of a nasty trade war set to tax Americans bigly this fall, slowly shrinking job growth, and God forbid a Mid-East war. The economic dance may come to end sooner than prognosticated.

The FOR (Financial Obligations Ratio) posted at 15.38% for the first-quarter (1Q/19), compared to 15.35% in the prior quarter, and 15.32% for 1Q/18. The DSR (Debt Service Ratio) reported at 9.91% for 1Q/19, compared to 9.89% for 4Q/18, and 9.85% for the first-quarter of last year, according to seasonally-adjusted figures from the Federal Reserve.

Top 4 U.S. Credit Card Issuers Debt

First-quarter revolving credit card debt, among the Top 4 U.S. issuers, grew 3.4% year-on-year (YOY), compared to 1.5% in the prior quarter. Among the nation’s Top 4 credit card issuers (Chase [JPM], Capital One [COF], Bank of America [BAC], and Citibank [C]), the annual growth rate for U.S. end-of-period (EOP) credit card outstandings in the first-quarter (1Q/19) is the lowest in the past five years.

For the first-quarter U.S. credit card EOP outstandings, among the Top 4 posted at $431.6 billion, compared to $454.1 billion for 4Q/18, and $417.6 billion for 1Q/18. For the first quarter of 2015, the Top 4 reported $348.2 billion in U.S. EOP credit card outstandings.

U.S. Consumer Confidence Outlook

The Conference Board Consumer Confidence Index declined in June, following an increase in May. The Index now stands at 121.5, down from 131.3 in May, its lowest level since September 2017. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, and the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, declined significantly in June.

The preliminary June Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) dropped more than 2% from May. The Index of Current Economic Conditions is now down more than 3% from one-year ago and the Index of Consumer Expectations declined more than 5% from June 2018.

After reaching its highest level in 17 years, consumer sentiment among Floridians plummeted 5.3 points in May to 96.4 from a revised figure of 101.7 in April. The last time consumer sentiment dropped more than five points was four years ago, in May 2015. According to University of Florida Consumer Sentiment Index for May, all five components of its index declined. Opinions of personal finances now, compared with a year ago, decreased 9 points from 97.5 to 88.5, the steepest decline in May’s reading.

U.K. Consumer Credit

U.K. card debt ticked downward again in May to an annual rate of 5.5%, its lowest annual growth rate in more than five years. Overall the annual growth rate of consumer credit slowed to 5.6% in May, the lowest growth since April 2014. However, consumer credit increased by £0.8 billion in May, in line with the monthly average increase since July 2018.

According to figures released by the Bank of England (BOE), U.K. consumer credit card lending settled at £72.9 billion for a 5.5% YOY gain in May, compared to a revised £72.8 billion or a 5.8% YOY gain in April, and compared to a revised £72.7 billion for a 6.6% YOY increase for March 2019. One-year ago U.K. consumer credit card lending settled at £71.6 billion,

AU Consumer Credit

Australian credit card, or “fantastic plastic” as locals call it, ended its love affair in April as debt, spending, credit limits and the number of accounts tumble to new lows not seen in more than five years. Over the course of the past year Aussie’s have cut up at least nearly half a million credit cards.

For April Australians owed AU$51.0 billion in April, compared to AU$51.5 billion for March and AU$51.5 billion for April 2018, for an annual decline of 1.8%, according to figures released by the Reserve Bank of Australia.


Source: Federal Reserve; RAM Research; CardFlash; CardData; CardTrak; Chase; Capital One; Bank of America; Citibank; Bank of England; Reserve Bank of Australia

New and Revised Data as of 07/08/19