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How Can Retail Sales Rise While Credit Card Balances Decline?
Daniel Gross, On Wednesday March 16, 2011, 6:42 am
Here's one of the great mysteries of the current economic expansion. Since March 2009, monthly retail sales have risen by 14 percent while revolvingcredit outstanding has fallen 15 percent. How can retail sales be going up strongly while credit card balances are falling sharply?A generation of retailers and analysts has been schooled to think that retail sales rise in tandem with credit card balances. Credit card companies, banks,department stores and retailers of all stripes helped pump up sales by flooding mailboxes with offers. In 2006 alone,some 7.9 billion solicitations weresent out, or about 26 for every person in the country. American shoppers responded to a fair number of them, and used them with gusto. BetweenDecember 2003 and December 2007, for example, revolving credit rose from $768 billion to $941 billion, or 22 percent. In the same period, accordingto theCensus Bureau, monthly retail sales rose from $308 billion to $377 billion. . . or 22.4 percent. (The Federal Reserve breaks downconsumer credit
into non-revolving (student loans, auto loans) and revolving credit (credit cards, essentially). Monthly data going back several decades can be seenhere.But something has changed in the past few years. The amount of revolving credit outstanding peaked at $974 billion in August 2008, and has fallen 18.4percent since then, to $795 billion in January 2011. The nation's credit card balance has fallen in 28 of the past 29 months. The last time there was thislittle revolving debt: September 2004. As the chart below shows, however, retail sales seem to have decoupled from revolving consumer credit.In late 2008, mounting job losses and the market collapse knocked the wind out of American shoppers. Monthly sales fell off a cliff, from $373.2 billionin August 2008 to $335.6 billion in December 2008, a decline of about 10 percent in a few months. Then, as American consumers continued todeleverage, retail sales began to reflate. After bottoming in March 2009, at $336.2 billion, monthly sales bounced back fitfully. By the end of 2010, theywere back to pre-crisis levels. In February 2011, retail sales were up an impressive 8.9 percent from February 2010, and stood at a record $387 billion.In the most recent three-month period, retail sales were up 8.2 percent from the year-before period.Does more spending + less credit = a consumer revolution? It could. Aaron Task and I discuss the issue in the following clip:
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