Credit card balances slide to end 2012

Consumers' credit card balances fell in December 2012, as fears about the federal government's fiscal cliff appeared to outweigh more upbeat seasonal concerns about getting a parking spot at the shopping mall.

Revolving debt, which is chiefly credit card debt, fell at a seasonally adjusted annual rate of 5.1 percent in December to $849.8 billion, after a rise of 0.8 percent in November, the U.S. Federal Reserve said in its latest G.19 consumer credit report. Looking at the full year of 2012, revolving debt was up 0.3 percent.

The December drop ended a series of months that saw modest growth in consumers' credit card balances leading up to the end of the year -- typically a time of higher spending, as malls fill with shoppers and many people set aside their money worries temporarily.

Overall consumer debt, including revolving and nonrevolving loans, was $2.78 trillion in December, up from $2.77 trillion in November, on a seasonally adjusted basis.

The closeout month for the year was a departure from the rest of 2012, which saw credit card debt bounce up and down within a fairly narrow range, while nonrevolving debt -- a category that includes auto loans, student loans and loans for mobile homes, boats and trailers -- showed more consistent strength.

"Auto loans were particularly good -- that's been a driver of consumer credit," said James Marple, economist at TD Economics. Car sales were up about 14 percent in 2012, and continued on that pace in January, pulling auto lending activity along for the ride.

The nonrevolving portion of consumer debt was $1.92 trillion in December, up 11.4 percent from $1.91 trillion in November. A year earlier, nonrevolving debt was $1.78 trillion.

The December pullback in credit card balances came despite gains in consumer income, up 2.6 percent for the month, and consumer spending, which rose 0.2 percent for the month, the government had reported earlier. The fiscal cliff, for all the worry it generated about the future, actually gave the economy a booster shot of income in December, as companies paid dividends early to avoid higher tax rates on dividends after Jan. 1, Marple said.

Headwinds seen for 2013 Economists said that the current year puts new obstacles in front of consumers that could rein in spending, and have unpredictable effects on credit card balances.

For one thing, higher payroll taxes began in January, hiking the bite from Social Security and Medicare by 2 percentage points - an average cost of $19 a week for typical earners, Marple said.

"I'm expecting to see a pretty big deceleration in the first quarter, in part because real income likely declined," he said.

People will probably respond by throttling back their savings, rather than ratcheting up their use of revolving credit to compensate for the missing take-home pay, he said.

But Michael Brown, an economist at Wells Fargo, wasn't so sure. "We could see a little bit more increase in demand for revolving credit simply due to the fact that many households may not be able to absorb this increase in the payroll tax," he said, "especially with gas prices rising."

Gas prices, which act something like a tax on household budgets in the short run, have been climbing recently as world petroleum prices stick at near-record levels. Average gas prices are $3.54 for a gallon of regular this week, having shot up 18 cents from the previous week, according to the U.S. Energy Information Administration. Average prices are about 6 cents a gallon higher than a year ago, and Wells Fargo's forecast sees further increases.

Just what the impact will be on credit card balances is difficult to tell, but consumers ended the year showing little appetite for new credit. According to the Federal Reserve's recent survey of senior loan officers, demand for new cards actually fell at a significant number of banks in the final three months of 2012. Consumers continue to do an exemplary job managing their credit card debt, as credit card default rates reached a new low for the post-recession period in December of 3.53 percent, according to an analysis by Standard & Poor's and Experian.

Confident consumers? Most analysts have downplayed a surprise drop in overall economic growth in the fourth quarter, putting it down to sharp decreases in government spending, while most private-sector activity steamed forward. GDP fell at an annual rate of 0.1 percent in the fourth quarter, according to the government's first estimate. If federal sequestration takes hold this year, with automatic cuts in federal spending, the blow to GDP could become more than a one-time event.

Robert Dye, chief economist at Comerica, said the economy's performance will depend partly on how consumers react to cross-currents of money pressures. While household income is taking a hit, improvements in home values and stock prices are boosting the overall wealth of many households - mitigating the income hit and potentially opening people's wallets. Recent readings of consumer confidence have been contradictory, he said, reflecting the mix of money pluses and minuses for household budgets, and making it more difficult to tell how people will jump.

"It does look like the consumer hung in there in the fourth quarter," Dye said. "My concern here is how far the consumer is over their skis right now."