US Banker | November, 2009
Retail sales are looking a bit stronger, credit cards are seeing more daylight, and consumers may be little less unhappy, according to several measures of consumer activity released over the past seven days by the U.S Census Bureau, Wells Fargo, and Credit Karma.
Retail sales rose 1.4 percent in October from September, the Census Bureau reported yesterday—still down 1.7 percent from a year earlier, but well above analysts’ expectations. But the bureau revised September’s sales numbers down. And retail demand excluding auto sales rose an anemic 0.2 percent, the weakest performance since July. The most bullish news embedded in last month’s numbers was the resilience in the auto demand: the post-Cash-for-Clunkers syndrome appears to have lasted just one month, with auto sales jumping 7.4 percent.
Credit Karma reported that that credit card debt increased 14 percent on a month-over-month basis, while Wells Fargo Home Equity’s third-quarter Homeowners Study shows an improvement in consumer attitudes and a cautious shift toward a possible increase in borrowing.
Still, caution is the operative word. Ken Lin, chief executive office of Credit Karma, says the uptick in credit may be seasonal in nature, although “consumer sentiment seems to coincide with the rebound in economic growth.” The jump in credit card debt crossed all generations and was accompanied by “slightly higher balances in other sectors, too.” Average credit card debt in October rose to $7,573 per consumer from $6,641 in September; the average consumer also held $194,372 in home mortgage debt (up from $190,096); $54,039 in home equity loans (up from $50,812); $14,729 in auto loans (up from $14,402); and $26,417 in student loans (up from $26,295).
Lin doesn’t rule out the possibility that some people are turning to credit cards to pay for basics, given high unemployment rates and the severity of the economic downturn. But the evidence so far seems to suggest a correlation between higher balances and signs of recovery. A return to binge borrowing does not appear likely, however. Lin sees fundamental changes in consumer psychology and lender behavior. “It will be harder for consumers to borrow more than they need,” he says. The banking sector is not in the clear, though: “Banks are still holding on to a lot of bad loans, and many borrowers are just treading water.”
Survey results from Wells Fargo Home Equity Group’s third-quarter Homeowners Study indicate that consumers remain leery about borrowing and committed to saving, although they seem more inclined to consider financing home improvements and necessary home repairs. Just a fraction of homeowners (five percent) plan to open a home equity account in the next six months. But two thirds expect to start a home improvement project in the net two years; 20 percent say immediate repairs will drive that decision.
“Consumer borrowing has become sensible, not frivolous,” says Jamie Moldafsky, executive vice president of Wells Fargo Home Equity Group. Most people have put educational, medical, and home repair needs on hold. “They will borrow only if the problem is urgent,” she notes. While saving is paramount for consumers, “needs are mounting and are not being met.” At some point consumers will have to have to bite the bullet, with a combination of borrowing and depleting some of their savings. The group’s latest study indicates that consumers “are changing their behavior,” Moldafsky says. “They’re taking action, they’re thinking, and that’s really good—they’re finding their way through the mess.”
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