Americans Reduced Credit Card Usage

Consumer spending defines 70 percent of the economy and it’s been rising at an impressive pace this past year. It appears they’re using cash far more often than their credit cards.

Americans are charging less on their credit cards and it’s posing problems for credit card companies as they rely on the many processing fees and interest charges to ensure they continue generating revenue. generate revenue. During the first quarter of 2012, outstanding credit card debt dropped 5.2 percent to $803 billion. This makes the third consecutive first-quarter drop.

Still, even though those first quarter numbers are down, total debt is slightly higher than what was reported in the same time frame in 2011, which was $794.4 billion. The $35.8 billion that was paid down in the first quarter is actually 12 percent higher than in 2011, but still 8 percent lower than 2010.

2011 Repeat

Does this mean the U.S. is lining up for a similar 2011 when Americans incurred about $53.4 billion in new credit card debt? Many say it’s entirely likely. Just because the economy appears to be recovering, it’s important to not return to the same habits Americans had before the recession that began in 2008.

It now appears card companies are benefiting more from the increase in credit card use overseas, even as wealthy Americans are also reining in spending in the U.S. According to numbers released by the Federal Reserve, credit card charges in the U.S. decreased by $5 billion in January and February combined.

The recent financial crisis and recession have resulted in many Americans saving more and spending less. There are signs folks are still too leery to spend too freely. Analysts say folks simply aren’t ready to rack up new credit card debt. There’s been a comparison to consumers spending habits during the first weeks in the Depression decades ago.

Consumer Confidence

Consumer confidence was flat in April, even as more saw their personal finances improving. Many are contributing these habits to the uncertainty associated with gas prices. The Discover U.S. Spending Monitor, a nearly 5-year-old daily poll tracking economic confidence and spending intentions of nearly 8,200 consumers throughout the month, climbed 0.2 points to 96.7. The Monitor remains at its highest level since October 2007.

AMEX Factor

Many credit card companies, despite their customers not reaching for their cards as often, are reporting good earnings. American Express recently reported first quarter net income of $1.3 billion, up 7 percent from $1.2 billion a year ago. Weaker earnings per share were $1.07, up 10 percent from $0.97. Consolidated total revenues net of interest expense rose 8 percent to $7.6 billion in the first quarter of 2012, from $7 billion a year ago.

It can be difficult to gauge with what appears to be conflicting information. It’s important to remember many “better than” and “worse than” comparisons come with a number of dynamics and sources. Still, and while it’s likely to be a slow dance, it appears the economy is looking better, which is good news for those sectors that rely on summer vacationers and, of course, later in the year, those businesses that rely on holiday spending.

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