Bankcard issuers are likely to face steep challenges in getting credit card spending back on track after the economic downturn, as various economic indicators suggest consumers are more cautious than ever about their card spending, one analyst contends.
Total outstanding credit card debt decreased during and after the recession that began in 2008, marking the first time in 40 years that credit card debt has not risen during a recession, according to Dan Geller, chief research officer with San Francisco-based Money Anxiety Index, which measures consumer financial anxiety based on economic data and consumer behavior.
Total outstanding credit card debt declined 18.9% to in April, to $790 billion from $974 billion in August 2008, when the recession began, Federal Reserve Board data show.
During all previous major U.S. economic recessions over the past four decades, Fed data show, total outstanding credit card data rose, Geller said.
Credit card debt rose 28.9% during the 1970 recession, to $4.9 billion from $3.8 billion, and it rose 21.5% to $65.6 billion from $54 billion in the 1981-1983 recession, according to Geller’s calculations. During the recession that began in 2001, outstanding credit card debt rose 1.1%, to $714 billion from $706 billion, Geller said.
“All signs indicate that, although we’re told the recession officially ended, a consumer recession has taken hold that is not letting up,” Geller said. “People feel very uncertain about the economy, and as long as that continues, they are going to hold back on spending, including on credit cards.”
Some consumers may have more money in their pockets, but it is unlikely they will begin to spend more freely anytime soon, Geller said.
“There is growing evidence that consumers are so worried about the future that they are likely to hold onto any extra money rather than run up credit card debts with it,” he said, pointing to new data showing consumers are resisting spending even as their income rises.
Americans experienced a 0.3% increase in personal income in May and a 0.2% increase in disposable income, while consumer spending fell 0.1%, Bureau of Economic Analysis data released June 27 suggest. The personal savings rate in May reached 5%, up from 4.9% in April, the bureau reported.
Moreover, while evidence suggests credit card issuers are warming up for a wave of fresh credit card borrowing, consumers are unlikely to react, Geller predicts. Certain card issuers recently expanded credit lines and may be loosening underwriting standards they tightened during the recession to protect against losses (
“Credit card issuers cannot expect to see an uptick in card usage until consumers begin to feel less anxious about the economy and there is no sign of when that will occur,” he said.
The Money Anxiety Index in May increased six-tenths of a point to 91.9 from 91.3 in April. The Index rose 3.7 points in May compared with a reading of 88.2 in May 2010.
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