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Credit Card Debt is Shrinking?

Credit Card Debt is Shrinking?

Credit Card Debt is Shrinking?
Pierre Area Chamber of Commerce

There is no doubt that the pandemic has altered the American landscape in many ways. What had been a booming economy suddenly had the brakes thrown on. For small-to-medium businesses, trends toward large company market domination that had slowly begun to reverse were suddenly accelerated. One of the friendliest environments in decades abruptly ceased to exist and was replaced by a harsh environment that left most simply trying to survive.

Relief efforts by state and federal governments have been primarily focused on large employers and the lifeline from Congress has been the Payroll Protection Program. Only time will tell how much the PPP has helped small businesses. The National Federation of Independent Business is reporting that 44% of its members say that even with this assistance they could be forced to shutter their operations within the next year.

While much of this may have been foreseen there are two major economic trends that many are finding a complete surprise. America's credit card debt is shrinking, and the country's savings rate has surged to a record level.

While in the throes of an economic collapse that saw the GDP drop 9.5% in a single quarter and 30 million Americans lose their jobs U.S. credit card debt fell by $100 billion. This in just the 5-month period from February to June. This is the exact opposite of what most market experts had predicted. According to the Wall Street Journal's whizzes, there should have been a surge in the country's dependence on plastic as people's incomes and savings dried up. However, stimulus checks, expanded unemployment benefits, and forced frugality, due to a lack of spending opportunities, would seem to have mitigated much of the impact of the pandemic on people's personal finances. Other trends that may have helped are a drastic shift to work at home arrangements and the capacity of American's to hustle and find ways to make money.

Working from home has lowered peoples' cost of living more than anyone could have foreseen. No commuter expenses like fuel or train tickets, no office or business lunches, and no latte meetings have resulted in massive savings for those setting up home offices.

Not only are they reducing their credit card debt they are banking their extra income. Through most of 2019 and until February 2020 the average U.S. savings rate was stable at around 8%. April saw this jump to a record 32% and then re-stabilize at 23% for May and beyond.

In part, this can be contributed to a lack of spending opportunities as people have restricted their movements and businesses have been closed but there is more to the story than this. There has been a surge in online business openings. Nationwide there has been a 49% increase in online retail sales. Much of this increase has, of course, gone to the big internet players such as Amazon but not all. Traditional brick and mortar stores and just average American's needing income sources are finding ways to make money online. If you have not yet taken advantage of the Chamber's Shop Where I Live website, now is a great time to start. If you have already set up your shop, continue to add inventory - locals and visitors alike may be searching your stock. 

The question that must be asked is can these movements be sustained. High-income consumers have been spending 10% less since January, middle-income consumers 5.3% and low-income consumer spending has dropped 2.1%, on average.

Here at the Pierre Area Chamber, we are no more clairvoyant than you. Still, we have faith in the American people to persevere and overcome whatever obstacles the future may hold. If nothing else, it is adaptability and ingenuity that defines us as a nation.
To view more of the Chamber’s business blog posts, click here.

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