With a recessionary mindset, U.S. consumers are supposedly spending less on their credit cards and paying off old credit card debt. Unfortunately, that's just not true.
The total amount of credit card debt outstanding is falling, and in aggregate, we are spending less on credit cards today than we were during the debt boom three years ago. But both of these statistics can be misleading.
Let's start with the first: lower levels of credit card debt. Credit card debt nationwide fell by $34 billion during the first two quarters of 2010. Yet banks wrote off $42.5 billion in bad credit card debt during the same period. That means the level of credit card debt is falling because banks are writing it off, not because consumers are paying it down.
Reuters blogger Felix Salmon noticed the same trend in 2009: "If you just look at the period from April through December 2009, the decrease in total credit card debt was a mere $29 billion, while charge-offs added up to $66 billion."
So what about falling credit card volumes? (Volume is the dollar amount spent via credit cards.)
If you've been following the trends at Visa (NYSE: V ) and MasterCard (NYSE: MA ) , you know that credit card volumes fell during the recession. I once believed that this owed to the average Joe putting fewer purchases on plastic, but it turns out that's not the case. At Visa, average volume per U.S. credit card has been surging:
Source: Visa filings, author's calculations.
How can total volume fall as average volume per card surges? Easy: There are fewer credit cards in circulation. In 2007, Visa had 365 million U.S. credit cards in circulation. By mid-2010, that number was 274 million and falling. This 25% plunge in the number of cards more than offset the 2% drop in volumes, pushing average volume per card through the roof.
Some of the increase in spending per card is undoubtedly because the cards taken out of circulation were either dormant or duplicate cards carried by one individual. How much? Hard to say, but it likely wasn't the only factor. American Express (NYSE: AXP ) reports that in 2010 alone, its spending per accountholder grew 13% -- during a year when the total number of AmEx cards in circulation actually increased.
I think all of this data confirms a trend I discussed last week: The economy is bifurcated. Some folks have defaulted on their credit card debt and had their cards taken away, while others are still confident enough to charge them up with abandon. This fits with trends we see in employment and corporate profits, too. In this economy, you're either doing very well, or very badly. When that's the case, loads of statistics you'd usually expect to give a clear view of things turn out misleading. The notion that we're giving up on credit cards is one of them.