January 12, 2012

U.S. Consumer—the Economy’s Engine—Chugs Along at Snail’s Pace

Longer-term positive news includes a decline in bankruptcy and credit card charge-offs

The U.S. Commerce Department reported flat retail sales in December, but the lackluster news may mask more positive news on the critical consumer front of the economy. U.S. retail sales rose a 0.1%–a mere third of the unheroic 0.3% rate that economists surveyed by MarketWatch expected. While retailers are not cheering this report, the Wall Street Journal notes the positive flip side that declining prices for gas, food and apparel are part of the reason for the low figure.

The U.S. consumer, plagued by job losses (the Labor Department reported a spike in jobless claims on Thursday) and shattered confidence, has been a reluctant participant in the tepid economic recovery. But there are some signs pointing to some longer-term healing. Fitch Ratings reported an 11.6% decline in personal bankruptcy filings last year–from 1,530,078 in 2010 to 1,353,186 in 2011. Accompanying this trend was a sharp decline in credit-card charge-offs, which fell by more than 37%, Fitch reports.

As Americans stabilized their finances last year, they also began to increase their reliance on credit cards, leaving many wondering whether Americans are beginning to feel better about the economy or are abandoning caution prematurely.

LowCards.com, in a news release citing the Federal Reserve’s consumer credit report for November, notes that consumers increased their overall borrowing by $20.4 billion, which amounts to the largest increase in ten years. At the same time, revolving credit card debt jumped at an annual rate of 8.5%–the largest increase since the depths of the economic crisis in March 2008.

Bill Hardekopf, CEO of LowCards.com commented: “Consumers will soon be getting credit card bills with much higher balances. Consumers can't get lured into running up more credit card debt if they can't afford to quickly pay it off. Increasing credit card debt is not a trend to be carried over into the new year," attributing the spending spike rather to seasonal holiday spending.

Reacting to Thursday's retail sales report, ITG Investment Research chief economist Steve Blitz was all negative, saying “today’s data should put to rest the notion of some super strong fourth quarter growth rate for the economy.”

“There is no real silver lining here,” says Blitz. “If it wasn’t for people going out for dinner and a drink and buying stuff at stores selling building material and garden supplies (hopefully before the cocktail) the numbers would have looked a lot worse. Sales, not counting autos, were -0.2% and control retail sales (excludes autos, gas, and building materials) were -0.2% as well. People weren’t even busily rushing about tapping their phones to send gifts–sales at nonstore retailers (such as Amazon) fell 0.4%.”

 

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