Credit Recovery: Where’s The Barbell?

Let’s entertain a simplistic, sound bite versionof the U.S. consumer marketplace: the “haves” and the “have nots.”If the holiday season showed us anything, it is that the “haves”are recovering nicely in their spending, while the “have nots,”are, well, not. In this barbelled view of the world, what do youhave when half the barbell is missing? A sinker comes tomind.

In a fascinating accounting of the half-missing barbell, a recentBloomberg.com article enumerates a rather alarming pattern (http://www.bloomberg.com/news/2011-01-18/rich-americans-raise-consumer-spending-with-little-help-from-middle-class.html),including:

• The top 20 % of earners now account for an estimated 40-50% ofconsumer spending
• The Bloomberg Luxury Sales Index for December same-store salesincreased 8.1%, while the Bloomberg Retail Sales Discount Indexincreased 0.9%
• Consumer confidence for households with $50k+ incomes hit a sevenmonth high in December, while it fell for households in the$25-$50k range
• Luxury retailers are adding stores, while mass retailers areunder pressure

Credit issuers have had to keep pace, for multiple reasons,focusing their initial market return on affluent consumers, andespecially those with pristine credit who escaped unscathed fromthe recession. As issuers ramp up solicitations, after a longperiod working out of severe portfolio challenges, there is afinite supply of low-risk prospects for whom to compete. Until themissing half of the barbell can be addressed, there will certainlybe little opportunity for a broad recovery in credit cardaccounts.

Make no mistake-unemployment and under employment are the mainculprits for the missing half of the barbell. And rising stockmarkets have helped buoy the spending of the “haves.” But whetherit is the economy at large, or a hoped-for revival of credit cardissuing, there is only so far a recovery can progress based on the”haves” alone. The fact remains, it’s tough to lift a one-sidedbarbell.