February 5, 2010
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News: What We Need Is Increased Spending
Americans are holding on to their wallets in hopes that the economy will soon be trending upward. On the other hand, debit and credit card companies as well as retailers want consumer spending to return to pre-recession numbers. Recent statistics indicate that they may soon get their wish. According to Citi analyst, Donald Fandetti, consumer spending increased in January by 10 percent from same time last year and by 7 percent during the last three months of 2009. Fandetti said it is welcomed news for credit card giants Visa and MasterCard who earn income from debit and credit card transactions rather than credit bearing interest income. Both companies were able to avoid losses as it watched from the sideline as lenders carrying the Visa and MasterCard brand sank further and further into debt due to high numbers of card write-offs.
American Express (AmEx), the top performing credit card company during the recession, is also looking to benefit greatly by an increase in consumer spending. However, unlike Visa and MasterCard who generate income from transactions fees, AmEx earns transaction fees as well as other credit card fees and penalties. It places the company in a unique situation as it deals with cardholders trying to make ends meet while living in a difficult economy. According to Fandetti, potential earnings growth makes American Express an inviting stock for purchase.Analysts believe that the economy has hit bottom and credit card companies will begin to see a gradual increase in spending and the overall economic growth. However, some skeptics say that the U.S. will continue to see increasing numbers of unemployment which will stunt economic growth. Several of the big lenders reported increased earnings during the fourth quarter 2009, however, credit an improved business model and prudent investments for the success. Retailers have also attributed decreased losses from reduced inventory strategies and smarter price points.