This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Is Credit Card Use Increasing?





Every month, First Data releases the latest results of its SpendTrend analysis. This tracking study measures the total dollar value spent across the country in countless stores and through numerous online shopping sites, and breaks that down by payment method.

Its February 2013 findings, published March 12, suggested that, on average, consumers may be growing more cautious in their overall spending. True, compared to Feb. 2012, the total expenditure measured increased by 4.6 percent. But the previous month had shown a 6.2 percent rise on January 2012. Some of this slow down in spending growth might have resulted from unusually poor weather, but other factors, First Data speculates, might include higher payroll taxes and gasoline prices, and delayed tax refunds from the IRS.

Credit card use up

The stand-out data in this SpendTrend analysis concerned the ways in which people are choosing to pay for their purchases. Here's the breakdown of dollar-volume, same-store growth for different payment media in February:

  • Credit cards: up 7.9 percent
  • Signature debit cards: up 2.0 percent
  • PIN debit cards: up 1.3 percent
  • Checks: down 4.2 percent
  • Closed-loop (usually store-branded) prepaid cards: up 3.2 percent

Wow. Credit cards were up very nearly 8 percent, dwarfing the rises and falls seen by other forms of payment. First Data's new evidence reinforces earlier figures from the Federal Reserve Bank of New York that showed that credit card debt rose by $5 billion in the last quarter of 2012. Something's happening here.

Why credit cards are making a comeback

So why are people increasingly reaching for their credit cards again? Well, even the experts aren't entirely sure. In a press release, First Data vice president and economist Rikard Bandebo explored some possibilities:

The fact that the personal savings rate significantly declined in January and consumers shifted more spending onto credit cards could be a sign that consumers may be overstretched. However, there are many other factors that could impact spending going forward including an improving labor market, steadily rising home values, healthy gains in the equity markets and the federal budget sequestration.

Yes, consumers could be swiping their credit cards more because they feel richer and more secure, and therefore less stressed and guilty when they flash their plastic. And they could well be right to do so:

  1. On March 8, the U.S. Department of Labor announced that unemployment is continuing to fall: by 236,000 in February, bringing the rate down to 7.7 percent, from 7.9 percent in January.
  2. That trend looks set to continue. On March 12, the quarterly Manpower Employment Outlook Survey reported the results of a poll of more than 18,000 U.S. employers. In every state and metro area, respondents on average reported positive hiring plans -- to an extent that ManpowerGroup characterized the shift as "a significant increase in job prospects." Meanwhile, the number of employers anticipating staff cuts was at its lowest since 2000.
  3. Also on March 12, Comerica Bank published its U.S. Economic Update for that month, and observed that, in February: "Not only were more workers hired, but they also worked longer hours and got paid more…"
  4. That Comerica Bank update's GDP forecast showed annualized growth at 2.0 percent or more in each quarter of 2013, rising to 2.7 percent in the final three months of this year.
  5. And, on March 4, Fiserv Case-Schiller said it expects the housing market soon to return to normal, with a sustained growth in prices.
  6. Meanwhile, the Dow Jones Industrial Average reached a record high on March 5 -- and then went on to set new records on at least three more consecutive days.

Just don't go mad

After years as Jeremiahs -- predicting doom and gloom, and preaching restraint to consumers -- we on this site are genuinely overjoyed to list such a compelling and comprehensive range of positive economic factors. And, on balance, we're pretty optimistic that the future really is going to be much rosier than things have been of late.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs