Yesterday, American Express reported its fourth quarter income, and the company had much to cheer about. The company’s net income during the last three months of 2010 was an impressive $1.1 billion, up 48 percent over the fourth quarter of 2009. It gets better than that. If you isolate just American Express’s card business in the United States, the increase from 2009 to 2010 was 70 percent. That’s a significant comeback reflecting a better economy, even if the portion of the economy reflected in the unemployment numbers hasn’t bounced back yet. American Express says that their revenues “reflect higher cardmember spending.”
For this to be mentioned in the press release announcing the company’s financials, it must be a significant increase. It is enough for American Express to cite as a major contributor to their success last year.
In the midst of the recession, mainstream press offered article after article about the New Frugality. Like the Great Depression defined a generation of savers, the Great Recession would change the attitude of millions of people, leaving spending on credit behind in favor of spending no more than what someone could afford. The young people whose attitudes were defined by the recession, those hit hardest by unemployment like recent college graduates, would forever have an approach towards money that mimicked their great grandparents.
I was skeptical. Life moves at a different pace than it did eighty years ago. Attitudes, fads, and philosophies change from television season to television season — even from the Emmys to May Sweeps. I had no reason to believe that once the credit card offers started appearing in the mail again (they have), and businesses have access to loans again (they are starting to), that the country won’t quickly remember the benefits of leverage and using other people’s money. If the American Express financial report is to be believed, it looks like this is happening now.
Here is what the CEO has to say:
“Continued investments in the business helped to generate higher consumer, small business and corporate card spending while expanding the use of our products online,” said Kenneth I. Chenault, chairman and chief executive officer. “With cardmember spending up 15 percent this period, we reached all-time records for the quarter and the full year.”
2010, the year barely out of the most severe economic recession since the Great Depression, set all-time highs for consumer spending on American Express cards. While the numbers are looking good, keep in mind that American Express wants the economy to improve. The more positive financial news the company produces, the more other companies in the industry will need to produce to remain competitive, and in an interesting feedback loop, all this good news helps increase investor confidence, companies will perform even better, and consumer confidence will continue to improve. American Express has a strong business reason to believe that consumers are spending more because that is how the company will continue to survive.
The findings by American Express may not reflect the average consumer. Are you still being as frugal as you were last year or the year before? Have your spending patterns or attitudes changed recently?
I think it won’t be long before the new-found frugality becomes a thing of the past, with easy consumer credit and the desire to make up for some lost time.
Updated June 23, 2014 and originally published January 25, 2011.