Credit card balances were down in August, falling 1.2 percent on an annualized basis, adjusted for seasonality, while overall consumer debt rose, the Federal Reserve said in its latest G.19 release .
The figure follows two back-to-back declines in revolving debt, which fell at a 2.6 percent rate in July on top of 5.2 percent in June.
Credit card debt is now moving consistently in the opposite direction of overall consumer debt, which rose at an annualized rate of 5.4 percent in August. The Fed's measure of total consumer debt, which adds auto loans and student loans to revolving debt, was $3.037 trillion in August, compared with $3.023 trillion in July. All consumer debt plunged in 2009 and 2010 as banks took massive write-offs, but surged in recent quarters. Card debt, however, staged only a modest, sputtering recovery, starting in 2011.
The Fed's look at consumer credit is one of a few economic barometers that were spared by the federal government shutdown, which delayed the widely watched monthly unemployment report last week and other statistics that are now on hold. The Fed is not funded by Congress, so its operations are not affected by the wrangling in Congress that sent statisticians home at other agencies.
"It's possible (the shutdown) will have an impact on (consumer) spending in October -- it's still undetermined how much," said Scott Hoyt, senior director of consumer analytics at Moody's Analytics. "If they can figure this out in the next week, it could be borderline insignificant -- if it goes on through the month, it could be severe."
More than 800,000 federal workers were put on furlough without pay, although Congress approved a measure to pay the back wages when the government is authorized to spend money again. It is hard to predict the reaction of furloughed workers, who could draw on their credit in order to support their expenses, or pull in their horns and spend less, in an effort to keep budgets on firmer ground.
Economic storm clouds on the horizon
The dispute over federal spending now casts a shadow over a measure to raise the debt ceiling, which the U.S. will need to raise by Oct. 17 or run out of cash, according to the Treasury Department. The Treasury released a report last week saying that a default could be the beginning of a financial crisis, sending the economy into another recession before it has fully recovered from the previous near-collapse in 2008.
"Our view is, there's no question if they don't resolve the debt ceiling ... that will probably spook financial markets enough that there's a good chance were talking recession," Hoyt said. However, recent reports said lawmakers have resolved not to bump against the ceiling, he added.
Consumer confidence weakened in September after a rise in August, according to The Conference Board, possibly setting the stage for more cautious use of credit cards. Consumers' outlook for the job market -- which is closely linked to spending and card use -- grew more pessimistic, the survey found. Fewer people expect their earnings to increase, as doubts grow about sustaining the recent improvement in jobs. The unemployment rate in August, the most recent official measure available, was 7.3 percent, slightly improved from July's 7.4 percent.
The current budget battles were barely a blip on the radar in August, when consumers increased their spending by 0.3 percent, in step with a 0.3 percent rise in real disposable income, according to the Bureau of Economic Analysis.
According to the credit bureau Experian , new cards issued the second quarter of 2013 were up 21 percent from a year earlier, for a $12 billion increase in new credit limits. However, the new cards are going almost entirely to prime and near-prime applicants, Experian found. Also, the cardholders are using less of their credit limits than a year ago.
"This is a positive trend, because it shows that despite an increase in new bank card users, consumers are managing their credit wisely," said Linda Haran, senior director of product management and strategy for Experian Decision Analytics, in a statement.
See related: Fed: Card balances fell in July