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Credit card debt could hurt holiday sales

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Some analysts are expressing concern that consumer credit card debt could eat into retail sales during the important holiday season, after research showed a jump in credit card balances.

According to America's Research Group, average monthly credit-card payments remained at about $175 in the four months through July 2006, but credit card balances leaped by a third to $1,600, the highest level in seven years. That spike was attributed to increased customer spending on gasoline and groceries. 

Economists have expressed concern that with consumers spending beyond their means, retailers could suffer. Worries are circulating that holiday sales could remain unchanged, or even fall, from last year. 

Although the average price of regular gasoline declined 14 percent to $2.62 a gallon in the week ending Sept. 11, 2006, from the record high of $3.04 in the week ending Aug. 7, U.S. Energy Department Data shows that pump prices are still approximately 42 percent higher than the average price of $1.85 in 2004.

The America's Research survey of 1,000 adults each during March, May and July found that 43 percent of shoppers in July said they fell pressure from credit card bills, twice the percentage recorded in March. The survey firm's chairman, Britt Beemer, predicted that at some point, consumers will decide they are spent out, causing retailers to experience negative sales.

Such a drop in sales as stores open at least one year would be the first such fall in 20 years, reported trade group International Council of Shopping Centers. 

Analysts explained that if the consumer is overextended prior to the holiday season, that could be an issue. Retailers' fourth quarter, generally between November and January, is the largest sales period and the sole time when many of them turn a profit. The National Retail Federation noted that sales during the November and December holiday season in 2005 totaled $438.6 billion, about eight time higher than sales from back to school, the second biggest shopping period.

The Federal Reserve stated that growth in consumer credit, which is the total borrowed through credit cards, personal loans, and auto loans, slowed to an annual pace of 2.8 percent in July, a deceleration from 7.3 percent in June and 4 percent for all of 2005. 

Bearish analysts caution that retail sales are artificially bolstered by credit-card debt, and with numerous available lines of credit the death of the consumer has so far been prevented. Still, they warn, this can only be taken so far.

Nevertheless, not everyone foresees a drop-off in consumer activity, citing Labor Department statistics that show U.S. job growth increased in August as the 4.7 percent unemployment rate neared a five-year low.   

If you prone to credit card debt, consider applying for a low interset credit card or transferring your existing balance to a lower interest card.

Published: February 11, 2007


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Updated: 12-03-2016


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