Consumer Spending Drove 3.1% Fourth-Quarter Growth

The economy is slowly picking up, and consumers are beginning to spend again. According to the revised estimate by the U.S. Bureau of Economic Analysis, real gross domestic product rose 3.1% in the fourth quarter of 2010. This marks the 6th consecutive quarter of growth. Consumer spending, which is 70% of the economy, rose 4%, the largest percentage rise since the fourth quarter of 2006.  The increase in the price of goods is accelerating also. Growth tripled, rising 2.1% in the fourth quarter, compared with a .7% rise in the third.

In a survey done by Mastercard Worldwide in Mid-December, 61% of consumers had no intention to reduce their spending this year. This is a significant change in attitude from the recession, and consumers who are re-entering the job market or worrying less about the safety of their jobs may be starting to act on their pent-up demand But even as purchasers’ spending patterns change, consumers are still actively looking for sales.

As per the MasterCard survey, 59% of shoppers whose incomes ranged from $35,000 to $50,000 had no intention to reduce their spending in 2011, and 57% of consumers who had an income of $50,000 to $75,000 were also not cutting back. The figure for shoppers making $100,000 to $150,000 was 73%.  In general, consumers were a lot less restrictive about their spending decisions.

Consumers’ mindsets have changed when it comes to shopping, and the way credit cards are being used has also slightly shifted post-recession. Consumer spending patterns are highly correlated with the number of credit cards issued. Banks are setting aside less money for defaults, which is another indicator that the credit card situation is better.  When the economy hit rock bottom, issuers no longer gave out generous credit card offers, and consumers began using debit cards or cash payments.

Now, credit card companies are making up for lost profits. American Express saw a 48% increase in profits in the fourth quarter, earning $1.06 billion. According to the New York-based company on January 19th, preliminary results were released showing total revenue increased by 13% to $7.3 billion, partly because of a 15% rise in cardholder spending.

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