Credit card balances edge higher

From

Credit/debit cards

  • Credit card balances rose in September. The average credit card balance stood at a $3,261.60 in September, up $7.90 on August. The average credit card balance is up just 3.7 per cent on a year earlier –
    the slowest annual growth in seven months.
  • The number of credit card cash advances in September was down 6 per cent on a year earlier. Credit card advances have been largely falling in annual terms for around four years.
  • The number of purchases made on debit cards rose by 2.9 per cent in September to stand 20.7 per cent higher than a year ago.

What does it all mean?

  • Aussie consumers are certainly keeping a tight hold on their wallets, and it is clear that a more conservative spending pattern has emerged over the past year. But there have been some subtle signs of thawing in the conservative behaviour that consumers have been displaying over the past year or so. In September the average credit card balance rose by a rather modest $8 and since bottoming out 18 months ago credit card balances have been steadily rising.
  • Despite the modest improvements consumers still prefer using existing cash facilities than taking on additional debt. The number of credit card transaction are up 5.2 per cent on a year ago, far outpaced by the spending on debit cards which are up a healthy 20 per cent on a year ago. Even the growth in credit card balances accruing interest has been sluggish with consumers continuing to pay down debt before the interest free period expires.
  • Interestingly the incremental improvements in credit card activity and balances occured during a period of interest rate stability. The $64 dollar question is what happens now given last week’s rate hike? If the consumer confidence numbers released earlier this week is anything to go by, it is like that the early signs of a recovery in spending activity is likely to take even longer to become a fully fledged recovery.
  • Consumers are still shopping around for bargains, but with the job market firmer, rising equity markets and discounting by retailers expected to be a feature for some time, it is likely that activity levels should improve in the early part of 2011.

What do the figures show?

Credit & debit card activity:

  • Figures released from the Reserve Bank show that the average credit card balance stood at $3,261.60 in September, up $7.90 on August. The average credit card balance is up 3.7 per cent on a year earlier – the slowest annual growth in seven months. And growth of a smoothed measure of credit card debt – the rolling 12- month average – eased from 4.6 per cent to 4.2 per cent in the month.
  • Of credit cards attracting interest charges, the average outstanding balance rose by almost $12 in September after falling $8 in August. The average balance accruing interest stands at $2385.10, up 5.4 per cent on a year ago but only up 3.9 per cent on a “smoothed” basis.
  • The number of credit card cash advances in September was down 6.0 per cent on a year earlier. Credit card advances have been largely falling in annual terms for around four years.
  • The number of purchases made on credit cards fell by 0.7 per cent in September to stand 5.2 per cent higher than a year earlier. The number of purchases made on debit cards rose by 2.9 per cent in September to stand 20.7 per cent higher than a year ago.
  • The number of just EFTPOS transactions in September (excludes cash out) rose by 3.4 per cent to stand 23.3 per cent higher than a year ago.
  • The value of cash withdrawn from ATMs in September continued to fall in annual terms. The number of cash withdrawn was down 0.2 per cent on a year ago – the 18th annual decline.

What is the importance of the economic data?

  • The monthly National Australia Bank business survey is valuable in providing a timely reading on the health of Corporate Australia. Key indicators of business conditions such as orders, employment, profitability and capacity use are covered together with a gauge on confidence levels.
  • The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

What are the implications for interest rates and investors?

  • The frequency of the rate hikes earlier this year did take its toll on the household budget. However given that the Reserve Bank did remain on the interest rate sidelines for the past six months, there are tentative signs that conservatism is thawing. The recent rate hike may result in the recovery in activity taking longer to play out.
  • EFTPOS transactions are almost 23 per cent higher than a year ago. And CommSec expects consumers to continue using existing cash facilities, rather than taking on additional debt.

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