Credit card sales

Among the many interesting bits of data in today’s release of the Central Bank’s monthly statistics are the February 2009 data for credit card spending. I haven’t paid too much attention to these before, but they seem like a useful early indicator of retail sales, and they may include cross-border purchases.

Not surprisingly, the February figures are very weak — indeed it seems that January and February 2009 are about the same as the same months in 2006. And these are in nominal euros — not inflation adjusted.

I thought readers might like to see this seven year chart which I have drawn. Of course February is generally the lowest month of the year (though it wasn’t in 2008), but the drop is very striking.

Update: OK, so I’d better deflate this by the CPI as below (Average in 2002=100). I leave it to someone else to seasonally adjust.

12 replies on “Credit card sales”

Great data source, thank you for this.

A few tangental qualifiers, which no doubt you’ve already considered

1) income and expected income elasticities likely to be higher for credit card financed purchases. So the gloom shock will hit CC purchased goods harder that cash purchases.

2) CC purchases probably correlate with a higher propensity to consume imported goods, so the effect on the wider economy might not be quite as severe.

3) To what extent is the power of this indicator limited by a drop in the availability of new credit lines to consumers? Have CC issuers become stingier? If so, this would push down the curve even in the absence of any real drop in retail spending.

@ Mark – presumably some of the increase is accounted for by a shift from cash/cheques to credit cards. Though I agree, it is still very striking.

@Marcus – There has a huge increase in the balance outstanding at month end. There is clearly a large number of people not clearing their balances in full.

I have been using the credit card figures as one component to forecast tax yields. It has proven a good tool to predict VAT trends. Using it and other information, I am expecting tax for the first quarter to come in close to €8,300M or about €2,800M less than the first quarter of 2008 & €3,600M less than Q1 2007. This would suggest to me a pre budget figure for the year in the region of €30,500M, €3,500M below the most recent Govt. estimate.

However, I could see the figure falling below €30,000M. For example I have estimated CT @ €3,600M, but this looks unlikely. There is a serious danger of a treble whammy on this tax head. Companies will submit their 2008 returns, which will show a loss rather than a profit. The a) 2008 prelim tax is refunded, b) loss is set back to 2007, 2007 CT is refunded and c) there is no prelim tax paid in 2009.

Where has it all gone wrong?
For VAT, I am expecting a first quarter figure of €3,400M and an annual total of €10,000M

Great graphs..

I recently read a report on Credit Card debt (damned if I can find it now) from the US, that pointed to an interesting pattern in credit card debt amongst the newly unemployed. The cycle runs something like this: Recently unemployed person either pays down the credit card from savings or redundancy, and doesn’t use the card. This new found thrift lasts, on average, for about 3 months, then the unemployed person starts to use the card again (difficulties quickly arise in adjusting to the lack of income), and debt levels spike. The individual then normally defaults within the following six months if they remain unemployed.

Perhaps a pattern to watch for here..

@Mark Dowling, I recently did some work based on the Central Bank quarterly sectoral developments in private sector credit reports. The amount of non-mortgage private debt taken on in Ireland went up by €270,146 every hour of every day between 1st Jan 2005 and 31st Dec 2007. An EXTRA €7,080,000,000 of non-mortgage debt in three years.

But I’m sure it’ll be fine.

Nothing to see here, etc, etc.

Patrick: Care should be taken with CC stats. I think the ‘hump’ in the middle of your 7 year graph is to a degree the product of two technology shifts which at different times have worked for and against credit cards.

The first is the ongoing shift away from cash since the start of the millenium, with card sales in total averaging 20% pa. This dominates the CC graph for the first few years.

The second is the more recent emergence of debit cards. These now account for almost half of all card payments, up from less than 1/3 as recently as the beginnning of 2006.

I think the Central bank could usefully publish the debit/credit card stats side by side, with the debit card stats being readily available from IPSO.

Lorcan: Precisely! They should. By excluding debit cards, there are serious distortions as debit cards have gained significantly on credit cards in recent years. My point was that the debit and credit card data should be presented side by side.

All this talk of credit and debit cards just reminds me in a depressing fashion of that dreadful tax that is stamp duty on payment media. Only in Ireland would the government tax you for not using cash (although I’m sure having said that there’s somewhere else doing just that)

Mark: Fair point, though there has been huge progress in the last 2 budgets;

> Cheques are now 50c each, up from 15c two years ago;
> Debit/atm cards now only €5, from €20;

I think other policies could be used in this area, such as making card acceptance compulsory for taxis. Such institutional changes might have a more dramatic effect than relying on price alone.

Feedback (completely anecdotal) from a coffee shop operator. He started to take credit cards before the summer. His average spend is down (but his overall volume is steady). He did not see a shift to credit cards in the run-up to Christmas. He thinks this indicates that people are not funding their lifestyle from their credit cards. This seems like a good thing.

The credit card companies are certainly now tougher on getting their money in on a monthly basis. rather than just letting things run. Again, this is a good thing.

I was curious about trends in personal credit card usage given the ease with which personal unsecured debt can be accrued. While the number of credit cards in issue has increased by 21.5% over the past 5 years, this trend tracked the expansion of the labour force over that period. However, personal credit card indebtedness has increased by €1.2 billion since February2004 but only €119.4 million of this was accrued in the past 12 months.

New monthly spending by personal credit card users dropped by 18.3% to €766.4 million and payments by personal credit card holders dropped by 15.8%, or €157.9 million in the 12 months to February 2009 – broadly tracking the 20% decline in retail sales in 2008 and 19% decline in tax revenue in January 2009.

Average indebtedness is €1,310 and card holders typically make a monthly payment of €380 but spend slightly less, €346, per card.

As a nation we are spending less, repaying less but owing more!

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