American shoppers did not shed their reliance on credit cards
over the year-end holidays.
An article by the New York Times
While the average debt on credit cards in
December decreased by 4 percent compared with the same month a year
before, Americans still carried an average of $4,284 on credit card
statements in December 2010, according to data released this week
by the credit monitoring company Experian.
The data offers conflicting versions of
the economy's already mixed picture. While some consumers spent
more during the holidays because the economy was rebounding, others
were still unable to cover expenses without leaning on their credit
cards. And while holiday spending also appeared to have been more
robust than in the last several years, even more recent data has
shown a bit of a slowdown in consumption this year.
"You've got people who already had good
credit and were pretty much managing their credit, and because of
the risk, paid down their debt even more," said Maxine Sweet, vice
president for public education at Experian. Then there were "very
dramatic increases in debt by people who, mainly, lost jobs, but
also had medical emergencies, and turned to credit cards to carry
them through the hard times."
The most recent consumer credit report
from the Federal Reserve showed that revolving credit, which is
mostly credit card debt, increased by 3.5 percent in December at an
annual rate, the first such increase in 27 months. (That data
included "charge-offs," or debt that the credit card companies
considered essentially uncollectible, while the Experian data,
since it was pulled from active credit files, did not.) Card
spending (including credit, debit and electronic benefit-transfer
cars) was up 6.5 percent in December compared with spending at the
same stores a year earlier, according to First Data, which
processes merchant transactions.
Retailers tend to benefit from credit
card spending, as it often means people are spending beyond their
budgets.
Holiday spending rose 5.5 percent in the
50 days before Christmas in 2010 compared with 2009, according to
MasterCard Advisors SpendingPulse. Much of that was driven by
increases in apparel, jewelry and luxury goods.
While many shoppers had vowed to spend
only with cash this holiday season, that was a budgeting trick that
not everyone could use.
The cash shoppers, Ms. Sweet suggested,
"were the ones that were pretty much in control - they can say,
'I'm going to be more conservative.' " People under more
difficult circumstances had to put certain debts on their credit
cards, she said. In February, the retail analyst David Strasser
issued a note to clients saying that the increase in credit
spending was good news.
Spending at Visa and MasterCard in the
United States was up a combined 8.3 percent for the fourth quarter,
Mr. Strasser noted, "a hopeful sign that big-ticket spending is in
recovery mode for 2011."
"Weak credit trends have clearly bottomed
out," he wrote, and the increases in credit card spending "will
disproportionately help big-ticket retailers that were hit hard
during the downturn, as credit was curtailed and consumers lacked
liquidity to purchase big-ticket products."
The Experian data, which is broken down
by metropolitan area, also gives a sense of how different cities
may be recovering from the recession.
The city with the highest card debt in
December was San Antonio, with $5,177 due on average, 21 percent
above the national average. (The figures include debts on regular
credit cards and retail Visas and MasterCards, but not a retailer's
own card - so a Gap-brand credit card would not be included, but a
Gap Visa card would.)
San Antonio was followed by Jacksonville,
Fla., at $5,115, a city with one of the lowest average credit
scores, suggesting that pure debt may have been piling up there.
Dallas, which came in at fifth with $4,936, also has one of the
lowest average credit scores in the country.
Atlanta was third, with $4,960, and
Honolulu, with $4,939, was fourth.
In 2009, the list of cities with the most
credit card debt was similar: Dallas, Atlanta, San Antonio,
Jacksonville and the Waco, Tex., metropolitan area.
Jeanie Wyatt, chief executive of the
San-Antonio based advisory firm South Texas Money Management, said
the economy in the city had been quite steady.
"Our unemployment rate is lower than the
national average," she said, "the health care field has been
fast-growing, and of course we still have a big military component,
and tourism, and a growing energy component. People are feeling, I
think, pretty good about their job security."
She said San Antonians were largely
living on working-class paychecks, which could explain some of the
credit card debt.
"While San Antonio has a lower
unemployment rate and a more stable economy, our wage earners are
at that mid- to lower end," she said. "I would presume that
lower-income individuals tend to have a higher percentage of credit
card debt."
The cities that racked up the lowest
credit card debt for December were Sioux Falls, S.D. ($3,446); the
area in Tennessee and Virginia around Kingsport, Johnson City and
Bristol ($3,449); Fort Wayne, Ind. ($3,476); Paducah, Ky.($3,515);
and Davenport, Iowa ($3,515).
In December 2009, the cities with the
lowest credit card debt were Altoona, Pa.; Lafayette, La.;
Evansville, Ind.; Davenport, Iowa; and Cedar Rapids, Iowa.
VantageScore, a credit rating produced by
the three major reporting bureaus, Experian, Equifax and
TransUnion, gives a picture of whether the credit card spending
came from economic confidence, or from desperation.
Midwest and West Coast cities dominated
the list of cities with the 25 highest VantageScores. Wisconsin had
three cities on that list (Green Bay, at No. 1; Madison, at No. 2;
and Milwaukee, at No. 21). Several states had two: California (San
Francisco and Santa Barbara), Minnesota (Minneapolis and the Valley
City-Fargo area, which crosses into North Dakota), Oregon (Eugene
and Portland) and Iowa (Cedar Rapids and Des Moines). There were no
Southern or Southwestern states on the list of the top credit
scores.
"Cities like Minneapolis, that always
have great credit scores, actually have higher debt than other
cities," Ms. Sweet said. "But it's offset by the fact that they
never miss payments, and they always have high credit limits."
The list of the 25 cities with the lowest
VantageScores in December was heavily Southern. Texas had seven
cities on the list (Harlingen, El Paso, Tyler, Waco, San Antonio,
Dallas and Houston, going from lowest to highest credit scores).
Other than two California cities (Bakersfield and Fresno) and Las
Vegas, every other city on the list was from the South.
"Part of that is a lot just a lot of
younger people moving in, and a larger migrant population - so by
younger, meaning not just in age, but also less depth in their
credit history, and we think that's one factor," Ms. Sweet said of
the lower credit scores in Texas in particular.
"When you have these consumers who are in
crisis with foreclosures and unemployment, that has to be driving
up their credit card debt," Ms. Sweet said.
Shoppers interviewed last December
sounded quite cautious about their spending.
Julianne Cantarella, 43, was at the
Garden State Plaza Mall in Paramus, N.J. (the New York metropolitan
area is No. 42 on the Experian list of high credit card debt). Her
house had finally sold over the summer after being on the market
for a year and a half, she said, so she thought the economy was
improving.
"But I did cut down on the money I'm
spending and the amount of gifts I'm buying," she said.
In Columbus, Ohio (No. 12 on the Experian
list), Dorothy Huggins, 54, was shopping with her
granddaughter.
"Everybody in our family is fine -
nobody's lost their jobs, but I have lots of friends and neighbors
who have been hit," Ms. Huggins said. "That made us more
conservative this year because we're wondering, are we next?"
"There are so many people hurting,
through no fault of their own. And we're fortunate enough to be
doing well," she said. "So we bought a lot less stuff this
year."
Christopher Maag contributed
reporting from Columbus, Ohio, and Nate Schweber from Paramus,
N.J.
