- The Washington Times - Friday, February 1, 2008

NEW YORK (AP) — MasterCard’s U.S. customers charged more in the last quarter of 2007 than they did in the previous year but are spending less on discretionary items and more on necessities.

Americans may be taking on more debt to pay for the high price of food and gasoline, which could be a troubling trend for people if the economy keeps worsening and costs don’t ease.

MasterCard reported yesterday a more-than-sevenfold rise in profit. The main drivers were the sale of a stake in a Brazilian company and strong card use by travelers and customers overseas, as well as a 10 percent rise in U.S. cards’ gross dollar volume.

The company’s shares soared $18, or 9.5 percent, to $207 yesterday.

Industrywide, Americans are paying down their balances at a slower rate than before, said Sanjay Sakhrani, card analyst at Keefe Bruyette & Woods.

“The question is, as more people lose their jobs, as the economy weakens a little more, what the repercussions are.”

Many homeowners are struggling with their mortgages, while commodity costs remain high. The Federal Reserve has been slashing key interest rates in an effort to revive the economy, but lower rates can accelerate inflation.

“Lower interest rates are not going to cure the problem of costs going up. It’s only going to exacerbate that problem,” said Greg McBride, senior financial analyst at Bankrate.com, an online financial-information service.

Consumers increased their spending by 0.2 percent in December, the Commerce Department said yesterday, the weakest pace in six months. That pace could slow even more if the job market weakens; last week, applications for unemployment benefits soared to the highest weekly number since Oct. 8, 2005.

If the economy does fall into recession, people may not spend more, but they’re likely to put more of their purchases on cards. MasterCard Chief Executive Robert Selander said that during the 2001 recession, slower gross dollar volume was offset by higher numbers of transactions.

“If you think about consumer behavior, when you are in a situation where you’re worried about your job or your mortgage or interest rates are high, you’re going to stop spending on those luxury items and start focusing on those things you need — whether it’s gas for your car or food for your family,” said Mr. Selander. “The consumer’s behaving in a pretty rational way.”

Purchase, N.Y.-based MasterCard said profit in the October to December period rose to $304 million, or $2.26 a share, from $40.9 million, or 30 cents a share, a year ago. Those results included an after-tax gain of $185 million from sales of the company’s stake in Redecard SA, a company that signs up merchants in Brazil. Excluding that gain, profit came to 89 cents per share.

Revenue rose nearly 28 percent to $1.07 billion from $839.2 million.

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