Recovery Seen in Rising Use of Credit Cards

This year, evidence is building that they are — with every swipe of their credit cards.

In the most recent quarter, covering January to March, American Express, MasterCard and Visa all reported increases in card spending. Business and consumer spending in the United States helped propel that growth, along with global growth and an increase in merchants that accept cards.

“The dust is slowly coming off credit cards,” said Gregory Daco, a senior economist with IHS Global Insight. “It is a general return of consumers to credit card usage, but it is a cautious one. Income is lower and slowly making a comeback right now.”

In the last few years, consumers and household budgets have been constrained by the housing crisis, a weak job market and, most recently, high energy prices. Economists now are cautiously forecasting a turnaround in spending. Consumers cut debt after the 2008 financial crisis, this year’s federal payroll tax cut is padding incomes, and consumers are adjusting to a labor market that appears to be stabilizing.

At the same time, the rate of deleveraging has been slowing, according to Federal Reserve data. Revolving credit balances, mostly credit cards, have generally been falling as demand declined, consumers used their cards less or paid them off, and banks wrote off nonperforming balances. Such balances reached $796.1 billion in March, compared with a peak of $973.6 billion in August 2008.

The most recent data show that revolving credit was up 2.9 percent in March compared with February, only the second monthly increase since late 2008. The other increase was in December 2010.

While these figures are moving in the right direction, Mr. Daco and other economists say there are still factors, like gas prices and other uncertainties, that could derail any progress.

“The positive news from the credit card issuers and processors is directly related to the increase in consumer spending over the past nine months and a more positive outlook for spending going forward,” said Cristian deRitis, the director of consumer credit analytics at Moody’s Analytics.

The card industry is a good gauge of how consumers are spending and what they are buying. It also shows how confident they are in reaching for their credit cards again. Consumers are starting to relieve some of the pent-up demand for autos, appliances and other goods that they had put off buying, analysts said.

“It is a psychological pall that is gradually lifting with the realization that the economy has in fact not been in recession for more than a year,” said David Robertson, publisher of The Nilson Report, a journal covering the consumer payments industry.

“It is incremental,” he added. “It is not blockbuster.”

The three biggest card brands, reporting their results for the latest quarter, say the trends point to relative growth of Americans’ consumer credit card use.

MasterCard said its first-quarter profit rose 24 percent, to $562 million, as people used cards more in global markets and to a lesser extent, as consumers swiped them more for nonessential items. Still, consumer spending in the United States has been surpassed by business spending.

“The recovery, such as it is in the United States, is really a commercially driven, as opposed to a consumer-driven thing,” Timothy H. Murphy, the chief product officer for MasterCard, said at a recent investor conference.

MasterCard’s credit card purchase volume was $115 billion in the first quarter of 2011, a 5 percent increase compared with the year earlier. While the company does not break down that spending, it said its consumer credit card spending rose. It was essentially flat in the fourth quarter of 2010 and negative going back to the second quarter of 2008. Analysts said that could mean consumers were returning to discretionary spending.

Visa, in its earnings report for the three months ending in March, showed $199 billion in credit purchase volumes in the United States, a 9 percent rise compared with the year-ago quarter. While the company did not break down the figure for consumers, the chief financial officer, Byron Pollitt, said credit was typically used more for discretionary purchases.

“As the economy recovers, our belief is that consumers, in combination with more employment, become more willing to spend on the discretionary side,” he said during a conference call.

American Express reported that first-quarter consumer spending on its cards in the United States reached $96 billion, up 13 percent compared with last year.

“Over all, we are seeing consumers spending again across all categories and including discretionary items like travel and entertainment,” a spokeswoman for the company, Joanna G. Lambert, said.

The quarterly results also suggest that more consumers were spending more freely, analysts said.

David J. Koning, a senior research analyst at Robert W. Baird Company, said that while American Express typically had a more affluent cardholder base, for example, growth was accelerating at Visa and MasterCard. That may reflect a broader economic recovery, he said.

Mr. Robertson, of The Nilson Report, added, “Those people at the very top are spending more quarter after quarter, as the wealthiest individuals overthrow whatever cloak of recessionary blues they might have had.”

He said, “And that is permeating and dropping down further into the American credit card public.”

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