Spending by consumers is being consistently depressed by low or zero wage growth, while prices have continued to rise
Something strange is happening to our credit card spending habits. We’re becoming prudent and sensible. In every other recession since credit cards first started filling our wallets, there has been a sadly predictable turn of events. A significant number of consumers overspend during the good times, and are then overwhelmed by debts when the economy turns down, and job losses mount. What the finance industry calls “delinquencies and impairments” shoot up and personal bankruptcies spiral.
But it hasn’t happened this time. I met the boss of Barclaycard last week, Val Soranno Keating, dubbed the “Queen of Cards” because she controls an organisation that has 12 million credit card customers. She tells me that, rather than rising dramatically as expected, arrears and defaults have done completely the reverse, and are close to record lows.
Instead, a grand substitution is taking place: cinema instead of theatre; fast food instead of restaurants; and public transport rather than cars.
The huge rises in gas, electricity and petrol bills are taking their toll. Every time petrol prices surge, consumers cut back in other areas.
An interesting relationship now exists between petrol prices and sales of electrical goods, such as TVs and computers. When petrol prices fall, almost exactly three months later consumers feel better off and buy a new flat-screen telly. The reverse happens when petrol prices rise – which may explain why Comet is on the brink of going bust.
Barclaycard says it has seen spending at fast food restaurants rise 27.4% over the past year, while it is broadly flat at all other restaurants, and well below the rate of inflation. Meanwhile, we’re leaving the car at home and taking the bus or train. Trips on public transport are up 6%, while those to fill up the petrol tank are down 4.1%, says Barclaycard.
“We’re choosing more frequent trips to the cinema or the local pizzeria. Spending at fast food restaurants has surged by over a quarter, and we’re being more value-conscious at the supermarket. We’re still getting out, but we’re choosing to leave the car at home due to high petrol prices,” adds Soranno.
Barclaycard doesn’t just see the data from millions of credit card purchases. It also sees around one third of all payments made every day in the British economy through its merchant services, so it probably has a better feel for the state of the British economy than the Office for National Statistics.
Unfortunately, it’s not good reading. Spending by consumers is being consistently depressed by low or zero wage growth, while prices have continued to rise. Normally, spending shows a rise in November, ahead of Christmas. But it didn’t happen last year, it seems. This year, whatever optimistic economists might say about “the green shoots of recovery”, it’s not showing up in Barclaycard’s figures, which reveals that spending is flat, at best.
The good news is that we’re not taking on more debt, even though our wages are down and prices are up.
A less benign interpretation is that economic confidence is so low that few of us think we can spend now and hope to pay it off later. The surprisingly robust jobs figures (have 500,000 jobs really been created over the past year?) probably mask a big switch to part-time and “mini jobs” where the squeeze on personal finances is intense. Historically low interest rates have also rescued mortgage borrowers who, even if they are in severe negative equity, can still, just, afford the monthly repayments.
The credit card figures also fail to pick up on the low-income households turning to payday lenders. Prudent and sensible? Desperate, more like.
At least the credit unions are trying to meet the challenge, as we’ve highlighted this week, but it needs a big player, such as the Post Office, to start offering cheap short-term loans if we are to be rid of the “legal loan sharks”.
We’re not, perhaps, in a great depression. But the great stagnation is upon us.
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