By Ken Paterson, VP of Research and Director, CreditAdvisory Service
American Express’s release of its Q2 Business Insights SpendTrends data (based on spending from its US cardholders) highlightssome trends we knew or suspected, with some new wrinkles.Luxuryretail spending is indeed up (nine percent), but heavy spending onhome furnishing was interpreted asfocused on fixing up homes whilereal estate markets remain depressed.Spend on business class airtickets increased dramatically while first class remained flat.Andmost revealing, QSRs spend was up twice as much as fine diningspend.The affluent are indeed spending more, but conspicuousconsumption appears to be out, at least for the moment.
Affluent consumers have been one of the main first targets ofcredit card issuers as they slowly return to account originationmode.The “go where the money is” strategy makes sense in anindustry still reeling from unemployment-driven charge -offs andaccount closures. But among those consumers able to spend, patternsappear to have changed to more modest luxuries.It is important tokeep in mind that those with the most assets also have experiencedthe largest drops in wealth since 2007-at least in terms of totaldollars.That has to affect the psychology of retailconsumption.
And some merchants, most notably QSRs (and especially McDonalds),have correctly anticipated demand for more upscale menu items.Withthe value items and the Angus burger anchoring the low and highends of menu preferences, plus new store formats, they have asuccess formula for today’s spectrum of consumersegments-including, apparently, the affluent.
Credit card issuers have a tougher job managing their menus.Theircredit appetite today focuses on the most creditworthy, and keepingtheir cardholders as credit-healthy as possible.As consumers slowlyreturn to spending and applying for new credit, buying patterns andamounts may reflect a new cultural reality.
Good thing they took trans-fats out of fries.We may see more ofthem in the monthly spend.