Credit Card Use at Four Year Low in 2015

Consumers were more careful about using their credit cards in the first quarter than any time in the past four years, according to new data from the Federal Reserve. Credit card use was down 0.3% in the first quarter, the lowest since the first quarter of 2011.

Given the tepid rise in wages and a moderate growth in the job market, consumers have become more cautious and are now cutting on their debt and saving more. In fact, the personal savings rate has increased to 5.5% in 1Q15 from 4.6% in the 4Q14 as per data from the Department of Commerce.

The slowdown in the US economy has led to lower employment levels. As per the US Labor Department, the three-month average gain in nonfarm employment in March was 184,000 – about 81,000 lower than February’s 265,000. In April, the three-month average gains in employment was a little better at 191,000, yet, considerably lower than 248,000 in the year-ago period. Average weekly earnings of $856.98 were also less than $857.39 in February. However, the average monthly gain in employment of 249,000 in the past 12 months was the fastest in the last 15 years.

Loans related to credit cards were up 5.9% in March, the highest in the past eight months, following two consecutive declines of 3.3% MoM. Despite a rebound in March, credit card loans dropped 0.25% YoY in 1Q15, compared to a 1.3% rise in 1Q14, the lowest since the 1Q11. The slowdown in credit card usage was reflected in the modest rate of growth in consumer credit (comprised of revolving and non- revolving credit). In 1Q15, consumer credit grew at the slowest pace of 5.5% YoY to $3,363.3 bn since the third quarter of 2012, after a 6.2% rise in the prior quarter. The small growth in consumer credit was supported by non-revolving credit including student and car loans – which continue to outpace credit cards. Student and auto loans were up 7.5% y/y in 1Q15. Month-over-month, non-revolving credit grew 7.9% ($16.2 bn) in March. Although consumer credit has been declining on a quarterly basis, it has shown an uptrend in the first four months of 2015.

Overall, in the first quarter, the job market was disappointing, leading to moderate retail sales and less consumer confidence. The U.S. retail and food services sales declined 0.2% YoY in 1Q15 for the first time in nearly three years after the recession, while it remained flat in April.

The series of disappointing macro data recently has further lowered consumer confidence. The overall index of consumer sentiment came in at 88.6 in May 2015, down from 95.9 in April 2015.

Credit card debt could remain low, at least in the near term, as households continue to be careful on their spending until the labor market and wage rates ensure some certainty. Fed officials are awaiting stronger employment levels and wage rates for any increase in interest rates. A weak labor market would most probably delay an interest rate hike that was initially expected in June.

Today, banks are more comfortable providing lending via credit cards because people are paying them off and using them more responsibly. This has made our job at Fund&Grow, namely, getting $50,000 to $250,000 in business credit for our clients, easier than ever. We even have a solution that requires no upfront payment. If you have a need for business credit or small business funding, please contact us for a free consultation at (800) 996-0270.