Party like it’s 1999: are US consumers going back to the credit card?
According to data coming out of the US, the American economy is growing. 82,000 professional and business service jobs were added in February, although half were in temporary services. Most of the job growth has also been in healthcare, social care, leisure and hospitality, manufacturing, and mining. Manufacturing contributed 13.6% of jobs.
However according to the Associated Press, €the January trade deficit widened to $52.6 billion€. This is an increase of €a revised $50.4 billion in December and the biggest gap since October 2008. Imports rose 2.1 percent to a record $233.4 billion. Exports were up a smaller 1.4 percent to $180.8 billion. Exports to Europe fell 7.5 percent.€
Of course the US economy cannot grow without consumption €" it is not just the driver of the US economy but has been a major engine of the world economy for the last five decades. Yet in this era of austerity and belt-tightening €" as debt hits gargantuan proportions €" the US consumer has presumably spent less.
Anyway Bloomberg is very happy, boasting that America is back on top where it should be. €We're entering a sweet spot for the economy,€ said Allen Sinai, president of Decision Economics Inc. in New York. €We're in a self-reinforcing cycle,€ where faster employment growth leads to higher household income and increased consumer spending.
US households spent $10.7 trillion in 2011, accounting for about 70% of GDP, according to the Commerce Department. That is more than the entire economy of China. €The consumer economy of the U.S. is the biggest in the world,€ Sinai said.
Yet all the data seems to show that real incomes are not growing. At the end of 2011, imports rose 1.3%, largely because the U.S. bought more foreign autos, auto parts and industrial machinery. Exports increased 0.7%.
How come China's economy has been hit by the slowdown in Europe, but even though the US economy also depends on European exports, the US is growing?
A lot of US job growth is in federal government and a lot of new jobs are temporary. Real incomes have not risen and US unemployment is only 0.1% lower than Britain's and far higher than Germany, Austria or Canada €" yet the US economy is outpacing them. US stocks recently fell as factory output rose less than forecast, while much of the country
is still depressed from a turndown in economic activity.
According to Bloomberg, €Personal consumption expenditures rose at an average annual inflation-adjusted rate of 3.5 percent during the period. After nose-diving in the recession, spending has recovered to grow at an annual 2.1 percent pace.€
US revenue for Gianni Versace of Italy will be €really strong double-digit€; Hennes and Mauritz retailing of Germany claim their US market is €growing fast€; the US is a €bright spot€ for Daimler; U.S. consumer spending was the €fundamental reason€ department-store sales for Prada increased in the year ending January 2011 and, €North American deliveries of Accord sedans and Civic compacts will lead the strongest business results in at least five years for Japan's Honda.€
In other words, US consumption seems to be behind this economic growth. But without real wages rising, what is behind consumption?
Habits are hard to break. According to MSNBC, €American households are dipping into savings and tapping credit cards to pay for their latest shopping spree.€ €So long as the consumer is spending, that's the biggie everyone is watching as they drive the economy,€ said Wayne Kaufman, chief market analyst at John Thomas Financial.
€Consumers are leaning on their savings and credit cards to pay for the spending increase. Personal income inched up just 0.2 percent last month; disposable income, the amount left after taxes and inflation, fell for a second straight month. That means dipping into savings and borrowing more.€
The Federal Reserve Bank of New York's quarterly report on household debt and credit showed that consumers opened more credit cards in the last three months of 2011 and charged more of their bills and purchases.
Consumers may also be relying on credit for more than just shopping. Data from Bankrate.com's February 2012 Financial Security Index, showed that consumers are saving less for emergency expenses. According to the index, a quarter of US consumers have more credit card debt than emergency savings. So bigger balances and increased appetite for credit may mean that American consumers are reaching for new loans just to get by.
According to CardHub.com's Q2 2011 Credit Card Debt Study, US consumers accumulated $18.4 billion in credit card debt in the second quarter of 2011. That is a 66% rise on the same quarter a year before and 368% more than in the second quarter of 2009.
€There is no doubt in my mind that a lot of consumers are reverting back to pre-recession habits and that this is why we are witnessing such a dramatic increase in credit card debt (net of charge-offs). Anyone whose income was tied to the housing boom €" either directly or indirectly €" should realize that those years aren't coming back unless we find ourselves in another bubble,€ warned Odysseas Papadimitriou, CEO of CardHub.com.
However according to the Associated Press, €the January trade deficit widened to $52.6 billion€. This is an increase of €a revised $50.4 billion in December and the biggest gap since October 2008. Imports rose 2.1 percent to a record $233.4 billion. Exports were up a smaller 1.4 percent to $180.8 billion. Exports to Europe fell 7.5 percent.€
Of course the US economy cannot grow without consumption €" it is not just the driver of the US economy but has been a major engine of the world economy for the last five decades. Yet in this era of austerity and belt-tightening €" as debt hits gargantuan proportions €" the US consumer has presumably spent less.
Anyway Bloomberg is very happy, boasting that America is back on top where it should be. €We're entering a sweet spot for the economy,€ said Allen Sinai, president of Decision Economics Inc. in New York. €We're in a self-reinforcing cycle,€ where faster employment growth leads to higher household income and increased consumer spending.
US households spent $10.7 trillion in 2011, accounting for about 70% of GDP, according to the Commerce Department. That is more than the entire economy of China. €The consumer economy of the U.S. is the biggest in the world,€ Sinai said.
Yet all the data seems to show that real incomes are not growing. At the end of 2011, imports rose 1.3%, largely because the U.S. bought more foreign autos, auto parts and industrial machinery. Exports increased 0.7%.
How come China's economy has been hit by the slowdown in Europe, but even though the US economy also depends on European exports, the US is growing?
A lot of US job growth is in federal government and a lot of new jobs are temporary. Real incomes have not risen and US unemployment is only 0.1% lower than Britain's and far higher than Germany, Austria or Canada €" yet the US economy is outpacing them. US stocks recently fell as factory output rose less than forecast, while much of the country
is still depressed from a turndown in economic activity.
According to Bloomberg, €Personal consumption expenditures rose at an average annual inflation-adjusted rate of 3.5 percent during the period. After nose-diving in the recession, spending has recovered to grow at an annual 2.1 percent pace.€
US revenue for Gianni Versace of Italy will be €really strong double-digit€; Hennes and Mauritz retailing of Germany claim their US market is €growing fast€; the US is a €bright spot€ for Daimler; U.S. consumer spending was the €fundamental reason€ department-store sales for Prada increased in the year ending January 2011 and, €North American deliveries of Accord sedans and Civic compacts will lead the strongest business results in at least five years for Japan's Honda.€
In other words, US consumption seems to be behind this economic growth. But without real wages rising, what is behind consumption?
Habits are hard to break. According to MSNBC, €American households are dipping into savings and tapping credit cards to pay for their latest shopping spree.€ €So long as the consumer is spending, that's the biggie everyone is watching as they drive the economy,€ said Wayne Kaufman, chief market analyst at John Thomas Financial.
€Consumers are leaning on their savings and credit cards to pay for the spending increase. Personal income inched up just 0.2 percent last month; disposable income, the amount left after taxes and inflation, fell for a second straight month. That means dipping into savings and borrowing more.€
The Federal Reserve Bank of New York's quarterly report on household debt and credit showed that consumers opened more credit cards in the last three months of 2011 and charged more of their bills and purchases.
Consumers may also be relying on credit for more than just shopping. Data from Bankrate.com's February 2012 Financial Security Index, showed that consumers are saving less for emergency expenses. According to the index, a quarter of US consumers have more credit card debt than emergency savings. So bigger balances and increased appetite for credit may mean that American consumers are reaching for new loans just to get by.
According to CardHub.com's Q2 2011 Credit Card Debt Study, US consumers accumulated $18.4 billion in credit card debt in the second quarter of 2011. That is a 66% rise on the same quarter a year before and 368% more than in the second quarter of 2009.
€There is no doubt in my mind that a lot of consumers are reverting back to pre-recession habits and that this is why we are witnessing such a dramatic increase in credit card debt (net of charge-offs). Anyone whose income was tied to the housing boom €" either directly or indirectly €" should realize that those years aren't coming back unless we find ourselves in another bubble,€ warned Odysseas Papadimitriou, CEO of CardHub.com.