Consumers Claim to Use Less Credit in New Survey, But Does the Data Support Their Claim?
While the dispute over whether the economy is in recession is still widely debated, it doesn't take an economist to figure out that the country's economy is in trouble.
While many Americans are changing their driving, eating and other lifestyle habits in order to cope with dramatic increases in the prices of gas, food and many other goods, the amount of consumer credit has grown throughout the year.
In fact, consumers used many times the amount of credit economists predicted in March of this year, adding over $15 billion to the total amount of outstanding debt owed in America.
But a new study actually tells a different tale, suggesting instead that American citizens of all ages and income groups have reined in their credit card spending over the last few months.
According to the study, conducted by Javelin Strategy & Research of Pleasanton, California, 37% of consumers have reduced spending on credit cards, while only 10% have increased their spending.
But do these numbers tell the whole tale?
Upon closer inspection, the Javelin study seems to suggest some interesting but not altogether persuasive conclusions that are in fact divergent from government statistics on consumer credit.
Firstly, the study is described in the media in a misleading way that suggests it is an economic indicator rather than an opinion poll.
That's right: instead of looking primarily at numbers, the Javelin study is based on a consumer survey taken online by around 1,500 individuals during May.
Credit spending is an interesting topic on which to learn consumer habit from their own account, to be sure, but several media outlets failed to mention this explicitly, suggesting instead in their headlines and ledes that the study showed actual reduction of credit card spending rather than consumers representations of their credit card spending.
The most interesting features of the survey are listed below:
- 45 percent of those surveyed say their ability to contribute to savings has decreased;
- 37 percent of consumers say they are using their credit cards less;
- 28 percent of those surveyed say their ability to pay off their credit card balance has become more difficult;
- One out of every three consumers said they are buying fewer basic goods;
- 57 percent of those surveyed say they are more careful about how often they eat out at restaurants; and
- 46 percent of consumers say they are shopping more at superstores like Wal-Mart and Target.
Of course, many of these factors are easy to check against the available data.
The last item, spending at discount and sale-friendly stores like Wal-Mart and Target, indeed seems to be true: same-store sales rates at Wal-Mart rose by 6.1 percent in June, while Target saw a modest increase of a 0.4% increase in same-store sales rates (6.6% increase in total sales). The economic stimulus checks cut by the federal government as part of President Bush's stimulus plan surely had something to do with this.
However, some of the data are difficult to measure (ability to contribute to savings has decreased, ability to pay off credit card balance has become more difficult) in part because looking at statistics such as a drop in savings or a rise in credit card late fees would not necessarily correspond to these responses.
In other words, they have more to do with consumer perception of financial status, rather than actual numbers. Clearly, consumer attitudes are crucial to a healthy economy, making this survey very telling about how an economic downturn can keep consumers pessimistic about money.
What does the Federal Reserve data say about overall credit spending, on the other hand?
If 37% of respondents said they are cutting back their credit spending, then it should be reflected in the Fed's consumer credit release for each month of the year.
While only preliminary findings are given for May, federal numbers for revolving credit, or credit without a fixed number of installment payments including credit cards, increased in May by 7.1 percent at the annual rate, or $5.6 billion.
Revolving credit for April had dropped by $4 million, showing the kind of drop that would be expected by the survey.
But the increase in May points to a return to form. Many individuals expecting economic stimulus checks in June may have planned to use their checks to pay for purchases bought on credit beforehand.
In any case, it appears that after a brief break, credit card spending continues to rise, despite what people say about their own habits.
About Total Bankruptcy
Total Bankruptcy provides bankruptcy information and news for free for people interesting in filing bankruptcy.
We can also connect you with on of our sponsoring bankruptcy lawyers for free.
Just fill out this form to get started: