Rising consumer debt may lead to sales growth
A new report from the Federal Reserve suggests consumer debt skyrocketed during the fourth quarter of 2011, which may lead to a growth in new sales.
Total consumer debt jumped at an annual rate of 7.5 percent during the fourth quarter of 2011, suggesting economic growth is comprised mainly by borrowing. After shrinking 2 percent the previous quarter, credit card debt leaped by 4.5 percent to $801 billion. The resurgence of auto sales edged non-credit card debt up to 9 percent, and overall, consumer credit increased from $19.3 billion to $2.5 billion, CBS News reports.
The fact that consumers are breaking out of recessionary habits and spending more indicates they are growing increasingly confident in the economic recovery of the country. This is particular evident by their willingness to make long-term purchases, such as automobiles. Furthermore, the trend outlined in the Federal Reserve report has continued thus far into the new year.
"Consumer confidence is so far running ahead of economic reality. All this spending has yet to be reflected in the economy. Initial government figures show the nation's GDP grew at an anemic annual rate of 2.8 percent in the last three months of 2011," the news source adds.
The Federal Reserve report further echoes a separate release from Visa. The credit card company announced that profits rose 16 percent in the first quarter as consumers used their debit and credit cards more frequently. This is particularly noteworthy considering the recent legislation that capped swipe fees in the United States – the area from which Visa makes 56 percent of its revenue.
In fact, the company upgraded its 2012 outlook, forecasting revenue growth in the low teens or high teens, as opposed to the single-digit figures it predicted last year.
This clearly highlights the value of point-of-sale software solutions that still accept credit cards. While mobile payments gained traction in 2011, with the launch of several near-field communication payment platforms, credit and debit cards remain the top way for consumers to pay for goods and services at retail merchants. Retailers would be wise to offer the option to pay by credit card in some way or another.
