Consumer Spending Drives Economic Growth

The economy has been kicking back into gear, and consumer spending plays a big role in driving this upswing, as it accounts for 70% of the economy. With the recent profit increases credit card companies have seen, it seems consumers are back out there using their cards to make purchases instead of cash or debit cards. As card companies report increasing earnings, mailboxes are filling with credit card applications once again.

Increase in Consumer Spending

As mentioned in a previous article, after this past holiday season, consumers in all income brackets said they had no intention of putting a hold on their spending this year. The holiday season might remind consumers it can also be fun to shop for ourselves once in a while. Also, with unemployment rates decreasing, consumers who have kept to a strict budget might be letting loose for a change, an maybe filling out a credit card application or two, because they can finally afford to do so. Consumers have more confidence in the slowly improving economy and are less worried about keeping a tight budget and saving money. This is shown in a report by the U.S. Bureau of Economic Analysis, which reported a 4% increase in consumer spending in the fourth quarter of 2010. This is the largest percentage increase in 5 years.

Consumers Not Afraid to Use Their Credit Cards

With a decrease in credit card delinquency in the fourth quarter of 2010, it seems consumers are more confident in their financial position. Because they are making more of their payments on time, cardholders are facing fewer late payment fees and interest rate hikes. This is most likely encouraging to consumers, who feel secure to once again use their credit cards for purchases.

Credit Card Companies See Increases All Across the Board

Of course if people are spending more money, it’s no surprise they are using their credit cards more, too. Credit card companies are seeing an increase in their net income and in card member spending. For instance, American Express reported net income of $1.1 billion in the fourth quarter of 2010, compared with $716 million a year earlier. A large percentage of this gain can be attributed to cardholders charging more to their credit cards.


By High Yield Savings Accounts

The founder and editor of with a passion for personal finance and experience in the financial industry.