Looks like we are celebrating the 1,827th rescue of Greece this morning. The good thing about this story, is it we should have rescues for years to come across the Eurozone – which of course should lead to rally after rally via Bailout Infinity.
Coming back to domestic affairs, the increase in credit card usage has been seen as a ‘positive’ by the Street; however looking under the surface we see some troubling trends; especially in growth in credit for purchases of gasoline and food. To which of course the Fed says – at least you can buy the second generation iPad for less than the first generation – no inflation here.
- Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices. The dollar volume of purchases charged grew 10.7 percent in June from a year ago, while the number of transactions rose 6.8 percent, according to First Data Corp.’s SpendTrend report issued this month. The difference probably represents the increasing cost of gasoline, said Silvio Tavares, senior vice president at First Data, the largest credit card processor.
- “Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem.”
- After-tax income adjusted for inflation fell 0.1 percent from January through May, according to figures from the Commerce Department. (and if you believe inflation is HIGHER than ‘reported’ by government, its worse than -0.1%)
- The swings in purchases of fuel and food have been “dramatic,” Tavares said. The volume of gasoline purchases placed on credit cards jumped 39 percent last month from a year earlier, compared with a 21 percent increase in June 2010, he said. Food shopping increased 5 percent.
- The value of an average transaction on credit cards outpaced the gain for debit cards, showing consumers are increasingly relying on borrowing to pay for gasoline and other necessities, Tavares said. (wonder how that will work out in the end?)
- The use of credit cards is a “smoking gun” that indicates some consumers, including the long-term unemployed who have lost jobless benefits, are resorting to other sources of cash flow just to “get by,” said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto. “People on the margin are putting necessities on their credit cards and this is a trend that’s very consistent with what lower-end retailers have been saying about their paycheck cycles,” Rosenberg said.
- Core customers of Bentonville, Arkansas-based Wal-Mart Stores Inc. (WMT) are “cash strapped,” William Simon, U.S. stores chief, said at a June 15 conference hosted by William Blair & Co. “The paycheck cycle is severe.”
- Similarly, customers of Matthews, North Carolina-based Family Dollar Stores Inc. (FDO) are living “paycheck-to-paycheck,” so when gas or food prices go up, “they don’t have the cushion that many others might have,” Chairman and Chief Executive Howard Levine said on a June 29 conference call.
- “For people to think that this rebound in credit-card usage is actually a sign of resurging consumer confidence, I think they’re looking at the situation backwards,” Rosenberg said.