What the Overuse of Credit Reveals About the Economy
NEW YORK ( MainStreet) Consumers are ramping up their credit card spending again, shifting from their prior use of debit cards, according to a new MasterCard analysis.
The credit card company's analysis of publicly available industry data reports that credit card volume in 2012 grew by $172 billion year-over-year, an increase of 8.4%. Consumers had previously focused their spending on debit and pre-paid cards.,/p>
"The confidence of the consumer has been dramatically altered," said Sarah Quinlan, senior vice president at MasterCard Advisors.
From 2008 to 2012, U.S. credit card volume grew by 14.4% or $280.4 billion, primarily from reenergized consumer spending, the report said. During this period, approximately $141 billion of spending shifted from credit to debit, primarily in the early years of the financial crisis.
In recent years the trend has reversed, with spending flowing from debit to credit, MasterCard's report said.
Consumers have been hit hard on several fronts this year as the payroll tax was reintroduced, health insurance premiums increased and gasoline prices rose for 36 consecutive days earlier this year, lowering the amount of available disposable income, said Quinlan.
"This year has been very challenging," she said. "Consumers had to adjust their spending."
Many consumers are earning wages at the same level that they had in 2007, and their discretionary income has not risen, Quinlan said.
"People are no better off than in 2007," she said. "People don't have the income and have changed their spending habits."
Consumers are now focused on purchasing items that need to be replaced, such as aging automobiles, Quinlan said.
"It's very much of a needs versus wants economy," she said. "People just don't have that extra disposable income."
While consumer spending improved between the months of April and July, shopping started decreasing by August, Quinlan said.
"Consumers are concerned," she said. "The back-to-school season was modest."
The holiday season will also see "modest" sales figures without a huge uptick in spending, Quinlan said.
"The use of debit is rising," she said. "Millennials like to use debit. The good news is the American consumer is resilient and adapting."
First Data Corporation, the Atlanta-based electronic commerce and payment processing company, said its data showed more consumers using credit in August compared to July. August marked the eighth consecutive month that consumers continued to spend more on credit cards compared to debit cards in 2013. The growth in credit is largely attributable to the strong year-over-year dollar volume growth in categories where shoppers traditionally utilize credit cards, such as building material and supplies, the report said.
"Lower year-over-year gas prices helped drive an increase in discretionary spending, which contributed to continued credit card growth over debit card," said Krish Mantripragada, senior vice president of information and analytics Solutions at First Data.