Charles Dickens’ Ghost of Christmas Yet to Come brings Scrooge’s sad life to mind. In today’s context, the issue surrounds the consumer as they face the winter holiday season with economic uncertainty, stressed household budgets, and an unsteady level of inflation. Managing a consumer’s credit card might be as stressful for a turkey in November.
Credit Cards Will Come in Handy at Thanksgiving
Ahead of the winter holidays, CNN reported that consumers might need to reduce their Thanksgiving feasting portions this year to manage their budgets. The cost of potatoes rose 17.5%, fruits and vegetables are up 10.3%, eggs surged 30.5%, and even gravy was up 16.3%. The New York Times says 2022 will be a “tough one for turkey,” as farmers are paying more for feed, fuel, and labor, citing 20% increases, according to a poultry source.
Enjoy thanksgiving, but save some room on your credit cards for the winter holidays.
This Winter Holiday Will Be Stressful for Credit Cardholders
The National Retail Federation expects the holiday season to grow by 6% to 8% this year, running just shy of $1 trillion, at between $942.6 billion and $960.4 billion. While that might seem to be healthy growth, consider the prior year, which grew by 13.5%, and inflation was low. At 8% growth, in a world of 8% inflation, that suggests a zero-sum game for retailers.
Morningstar’s suggestion about rising rates and “credit card” wielding consumers” are a bad combination as the holiday season approaches is spot on. It is going to be something for credit card companies to prepare for.
- Consumers are planning to spend an average of around $1,400 this holiday season, two forecasts said
- It is three weeks before Black Friday, but the Federal Reserve has likely made the post-holiday debt hangover a little more intense.
- The central bank made a widely expected move last week, adding another 75-basis-point increase to a key interest rate
- This rate hike will be reflected in credit-card rates in December 2022 or January 2023. In other words, pay off your post-holiday credit-card balance in full.
- Every year, many people accumulate credit-card debt through the holiday season, pay it off in the early part of the following year — and then repeat the process.
The problem here is inflation, rising interest, and an unsteady climate.
- What is different in the 2022 shopping season? Economists point to 40-year high inflation coupled with rising interest rates. The Federal Reserve hopes its four-consecutive 75-basis-point interest rate hikes will cool inflation without sending the economy into recession.
We hate to be a grinch, but credit card issuers must be in front of the issue. In some cases, that means to be decreasing, not increasing, credit card lines. Do not lose the holiday spirit, but most of all, consider the household budget. Tighten up credit quality now. 2024 will be a better year; 2023 looks very risky now.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.