In a democracy with a decentralized economy, it can be very difficult for economists to determine the exact nature of consumer spending trends. One method that has become increasingly popular is the analysis of data reported by credit card processors. This data can be used to determine consumer spending in various sectors such as food, travel, and fuel. In addition, overall credit card spending can be used as a broad measure of consumer confidence.
For example, The Wall Street Journal reports that credit card use is on the rise as consumer confidence appears to be growing. They cite reports from both American Express and Capital One indicating that balances grew in the 4-5% range over the last year.
What Is Going On
Since the beginning of the recession in 2008, consumers have started to control their credit card debt. This recession in particular was characterized by businesses and consumers taking out too much debt, so it was only natural that many sought protection in more conservative methods of payment such as debit cards, checks, and cash. As time wore on and consumer confidence has begun to recover, shoppers are again feeling more wiling to use their credit cards. This holiday period in particular has been notable for increased consumer spending.
At the same time, credit card issues are loosening up the tight restrictions that had been in place since the beginning of the prolonged economic downturn. Plus, borrowers are being enticed to apply for new credit cards, as evidenced by banks offering $200 cash back sign up bonuses, – as evidenced by the Chase Freedom $200 – and long term promotional financing – such as 0% APR balance transfers lasting nearly two years. These moves are only possible now that delinquency rates have been steadily declining among all the major credit card issuers.
Conclusions
Increased credit card use coupled with declining delinquency rates is good news for credit card issuers. From the consumer standpoint, credit card applicants can expect to see more generous offers in the coming year as banks seek to reignite their highly profitable credit card lines. As with all economic recoveries, the danger to consumers is that, once again, they may be caught up in the good times and become overextended. Consumers should always keep in mind that the ideal level of credit card debt is zero. Since many cardholders will fail to achieve this ideal, the credit card industry’s profits are assured for the foreseeable future.
