Black Friday is 32 days away, on November 26. With 2021 retail sales “estimated to total between $4.44 trillion and $4.56 trillion” versus “comparable 2020 sales of $4.02 trillion,” according to the National Retail Federation, the future is bright.
Revolving debt, the amount of credit card debt that carries over from month to month, also continues to move upward, if only slightly. For example, from June 2021 to August 2021, the Federal Reserve noted that outstanding balances grew from $992.8 billion to $1.001 trillion. With the winter holidays ahead, it is likely to see that $1.0 trillion round up over $1.1 trillion.
That is good news for credit card issuers, which generate interest revenue. The average rate assessed interest climbed almost 100 basis points in August, now sitting 17.13%, up from $16.30 in June.
Today’s Financial Times points to the upward trend in an article titled “Lenders Say Americans are Ready to Use Their Credit Cards Again.”
Leading credit card lenders in the US are welcoming signs that customers are poised to increase their borrowings after paying down balances during the Covid-19 pandemic.
Depositors are reducing the cash cushions they built up during the crisis with the help of government stimulus payments and debt forbearance programs.
Any increase in credit card borrowing would be good news for the banking industry, which has struggled to find profitable uses for the cash piling up on its balance sheets amid tepid loan demand.
The deposit issue is important to note because it says households are ready to release the emergency funds they squirreled away during COVID, much of which came from government release programs.
JPMorgan Chase, the biggest US bank by assets, said credit card users who were most likely to carry balances before the pandemic were now reducing their deposits at a faster clip then other customers — which could lead to faster loan growth.
“We see evidence of excess deposits starting to normalize in segments of the population that traditionally” use their cards to borrow, the bank’s chief financial officer, Jeremy Barnum, said during an earnings call this month. “That makes us relatively optimistic” card outstanding balances will grow.
Credit card giants Synchrony and Discover, which have customer bases with lower credit scores than big banks such as JPMorgan, also said consumers were starting to draw down their savings to more customary levels.
Bank of America, the second-largest US lender, said the number of customers carrying balances on their credit cards instead of paying them off every month is “slightly” creeping up.
At Synchrony, the number of credit-card users making more than the minimum payment on their monthly bill was lower in the third quarter than the second, while the number of people making the minimum payment or less rose.
Credit card issuers can breathe easier. There are 68 days until year-end. So, year-end numbers should be in the bag, and you will start 2022 in good stead.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
