January 11, 2010
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News: Americans Pulling Their Weight; Lenders Troubled
In the wake of new credit card federal regulations, lenders have threatened consumers saying new legislation will only serve to reduce availability of credit; however, consumers have a message of their own. Americans have been pulling their weight to let the retail and financial industries know that they have had enough. Their message is loud and clear to credit card companies that have dug deeper and deeper into cardholders' pockets to produce earnings that would reward millions to top management for driving companies into near bankruptcy. Americans also have a message for retailers who have progressively increased prices in order to produce higher gross margins for greedy stockholders. A recent report indicated that Americans reduced credit card spending to an all time high of 20 percent during November leaving lenders troubled over the loss of interest income.
According to the Federal Reserve, the decrease is the largest drop since the Fed began tracking it in 1943 and the 10th consecutive month that consumers have reduced credit card spending. A $17.5 billion drop is a significant difference from the $6 billion that economists expected after a $4.2 billion decrease in October. According to the Federal Reserve, outstanding consumer credit also reduced significantly to an adjusted annual rate of 8.5 percent to nearly $2.5 trillion. Although reduced credit card spending aids Americans in becoming more financial healthy, it has grave consequences for the economy. Two-thirds of the gross domestic product (GDP) is made up of consumer spending. If the nation is to continue recovering from the recession, it depends on consumer spending to grow.
Despite the reduction in credit card spending, however, October and November were good months for retail sales. Combined, Americans reduced card spending by 18.5 percent for the two months; the largest since 1974. Furthermore, card spending fell by 10.5 percent in the month of September. Consumers also reduced other types of credit like auto loans and recreational vehicle loans in November by 2.9 percent to $1.591 trillion. Despite the concerns of lenders, Americans appear to be doing a better job of managing their finances and have a changed mind set to: if you don't have it, don't spend it.