The market likes today’s news that consumer spending ticked up in Q1, but news like this puts the sustainability of that growth in serious doubt.
LA Times reporter David Lazarus has been looking at the shockingly aggressive measures that American Express (AXP) has been taking to eliminate potentially unprofitable customers. Some customers are being asked to send in tax filings in order to re-prove their credit worthiness, while others are being dinged for seemingly minor indiscretions:
…demonstrating that AmEx isn’t just pushing around middle-class cardholders, I spoke the other day with Beverly Hills resident James B. Davis, who runs a publishing company with about $16 million in annual sales. He said he holds three AmEx Platinum cards, one for personal use and two for business.
Davis, 61, recently received a letter from AmEx saying it was cancelling a benefit allowing him to carry an extended balance on certain travel expenses. It said this was due to an unspecified problem with his credit file.
“I have no debt — zero,” Davis told me. “So I called up my credit file and went through all 40 pages of it. I kept seeing ‘Account in good standing,’ ‘Account in good standing.’ Every account was in good shape.”
He said he finally found a single instance when he was late with a MasterCard payment — about three years ago.
Could AmEx be overshooting on the conservative side? Yeah, that’s possible. But actions like this suggest banks don’t think it’s all “priced in” and that today’s active, bill paying consumers are likely to be tomorrow’s unemployed deadbeats. What’s more, with politicians sabre rattling about anti-usury laws or interest rate caps, AmEx has even less incentive to play around with potentially dicey borrowers. In otherwords: AmEx is going back to being AmEx, when the brand actually had some exclusivity to it.
So yeah, credit card companies will probably be too conservative for a while (naturally) to avoid future losses, and that will certainly show up in reduced spending. But given the fact that our debt addiction is a problem, this isn’t necessarily bad thing.
Meanwhile, Merrill’s outgoing econ head Rosenberg is sceptical about the consumer rebound too (via Zero Hedge):
The one bright note in the report was the consumer which posted a 2.2% quarterly annualized gain, in the first upturn since 2Q 2008. Early tracking into 2Q however, suggest that this positive pace will not be sustained – not surprising amid the steadily climbing unemployment rate. The saving rate continued to climb, resting at 4.2% in 1Q — a full percentage point higher than in 4Q. On the price side, the GDP price index increased by 2.9%, above consensus but in line with BAS ML expectations. The more important consumer price index fell by 1.0% as expected and the core PCE advanced by an anemic 1.5% q/q annualized and the yearly pace slowed to a 4-year low of 1.8%.