ABA: Credit card conditions strong as economy grows

Credit card conditions were strong in the first quarter of this year, according to the American Bankers Association’s most recent Credit Card Market Monitor

Outstanding credit from credit cards as a share of disposable income remained well below pre-pandemic levels during the first three months of this year, and inflation-adjusted monthly credit card purchase volumes eased. The year-over-year number of new credit accounts increased early this year as subprime account openings recovered. New account creation remains 17 percent below pre-pandemic norms.  

 Monthly purchase volumes dropped 2 to 3 percent across risk tiers from the previous quarter, the first decrease in nearly two years. Purchase volumes have increased 13-17 percent on an annual basis, according to the report, as consumer spending increased due to decades-high inflation readings and ongoing recovery from the pandemic recession. 

Despite positive 1Q numbers, there are warning signs that credit card conditions will worsen this year. Credit card debt as a share of disposable income increased as real disposable personal income dropped 2.5 percent. Fewer cardholders paid their entire balance during the first quarter, and more carried a monthly balance. According to the ABA’s Quarterly Credit Conditions Index, released in June, bank economists expect currently strong business and consumer credit markets to weaken over the rest of the year as the Fed raises interest rates to combat inflation and supply chain disruptions continue. 

 “This new data indicates consumer credit use and credit access are slowly normalizing to pre-pandemic levels,” said ABA Chief Economist Sayee Srinivasan in the Credit Card Market Monitor report. “With a strong labor market and ample savings, consumers remained well-positioned to meet their financial obligations as the year began. Still, with high inflation and rising interest rates, it’s important for consumers to remain vigilant about keeping debt at manageable levels going forward.”