Splurging On Experiences Propells Overspending
Consumer spending overall has slowed. However, two recent studies demonstrate that some of us are overspending. They also show that we know we are overspending. Furthermore, one survey shows that our increased spending relies more on credit and that scares the hell out of us — as it should.
Part of overspending can be attributed to the reopening of the economy. After tightening our belts during the pandemic, we are now free to splurge on nights out, entertainment, and travel.
“We are seeing affluent spending grow more because it was perhaps artificially depressed when the pandemic was going on,” Visa’s CFO Vasant Prabhu told Fortune Wednesday. “You couldn’t take that trip to Europe, or you couldn’t go to that expensive restaurant.”
The credit card company has seen growth in payment volume, cross-border volume, and processed transactions, according to Prabhu.
Too Much of a Good Thing
Many of us have returned to pre-pandemic spending habits. Some are exceeding those spending habits.
A TD Bank report found that 30 percent of those surveyed reported overspending on dining out and entertainment. That compares to 10 percent in 2021.
The main overspending category remains shopping, according to TDBank. The survey found that 54 percent of respondents reported overspending on shopping. A significant impact in this area is the return of in-store shopping. In-person purchases increased from 12 percent in 2021 to 29 percent this year.
Prabhu says Visa sees the same thing. He says we are moving from the purchase of goods to spending on dining, entertainment, and travel.
Credit Card Debt Rising Again
The Federal Reserve’s monthly credit report saw revolving credit increase to a new high of $1.103 trillion in April.
Credit card debt had declined during the pandemic but is now on the rise.
A report from the New York Federal Reserve showed credit card balances declined by $15 billion in the first three months of 2022. However, balances were still $71 billion higher than the same period last year.
“We got our new record,” Ted Rossman, a senior industry analyst at CreditCards.com told CNBC. “It took just 11 months for revolving debt to bottom out and then 15 months from there to climb back to a new high.”
Fear And Loathing Over Spending
Another survey by Upgrade Points, a travel website, reports that over 20 percent of respondents have trouble facing their credit usage. In fact, 24 percent of respondents said they would rather go to the dentist than share their credit history with a partner. In addition, 22 percent said they would rather someone read their text messages than see their credit history. What is more, 35 percent said they immediately regretted a credit card purchase.
The Federal Reserve Bank continued its attack on inflation Wednesday by raising interest rates again. The result will be higher borrowing rates. As a result, credit card purchases will cost more – unless you pay them off each month.
“A variety of factors are hitting household budgets, so it’s more important than ever for consumers to be vigilant about tracking their spending and using credit responsibly,” said Paramita Pal, Head of U.S. Bankcard at TD Bank.
Used Car Prices Moving Up Again
Used car prices slacked off minimally for a couple of months but now are on the rise again.
The average price of a used car in June was $33,341. That is $172 below the market price high in March, according to a report by CoPilot, a car buying research app. However, That is $10,046 or 43 percent above normal. The June average is a new record.
CoPilot’s Return to Normal Index is a measure of what a car sells for today versus what it would have sold for if there had not been a pandemic, microchip shortage, and supply chain problems.
Fewer New Cars Boosts Used Car Prices
A covid-related downturn in chip production along with supply chain problems has reduced new car production for almost two years. Many new car buyers have had to put their names on a waitlist.
“For nearly a year now, we’ve seen new vehicles transacting above suggested retail prices,” said Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive. “High prices, a lack of inventory, few incentives — the market is changing, pushing many would-be buyers to the sidelines and forcing others to order from future stock and wait.”
Market forces are also pushing many would-be new car buyers into the used car market. That resulted in the higher used car prices we see today.
The Road Ahead
Predicting the production and prices of new cars is a dicey endeavor. Microchip production and supply chain issues are bound to change at some point. However, inflation, disease, and war make it hard to say when.
Those who are predicting the used car market see prices declining later this year.
KPMG issued a white paper late last year that predicted used car prices would drop 20 to 30 percent in the final months of 2022.
“There are reasons to believe conditions will improve in 2022,” writes Sean Tucker in Kelly Blue Book. “But it will take months and occur slowly as the microchip supply recovers.”
Program Helping Displaced Workers Being Abandoned
A federal initiative that has helped over five million workers find new careers and develop new job skills is fading away and will be discontinued entirely if congress does not act quickly.
The Trade Adjustment Assistance program provides assistance to workers whose jobs have been moved out of the United States to cheaper labor markets. Trade Adjustment provides funding for retraining, job searches, health coverage tax credits, and relocation.
Over time, funding and services for Trade Adjustment Assistance have been worn away.
Last year, the program was restricted to workers who produced goods. Service workers were eliminated. In addition, only jobs that went to a U.S. free trade partner were covered.
America has free trade agreements with 20 countries: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Singapore, and South Korea.
Congress needs to pump $700 million into Trade Adjustment to keep it running. However, the major parties are split. Republicans are content to let the program die. Democrats are fighting to keep it alive.
“They (Republicans) have sold out American manufacturing over and over by voting for trade deals and tax policy that send jobs overseas, and continue to block investments to empower workers who lose their jobs because of those bad trade deals,” Ohio Senator Sherrod Brown told the New York Times via e-mail.
Last year Trade Adjustment certified 801 requests for assistance covering an estimated 107,454 workers
This month, the program stopped taking new applications. Without renewed funding, it will slowly fade away.
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