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.