8 months ago • 2 mins
What’s going on here?
American Express (Amex) reported mixed results on Thursday, even after customers swiped their slick and shiny cards like they were going out of style.
What does this mean?
You can get credit cards for free, so Amex has spent years revamping the benefits of its popular platinum card to justify the $695-a-year fee. Looks like that’s more than paid off, helping push up the amount spent on its cards by a better-than-expected 14% last quarter, with customers splashing out on more leisure activities like travel and dining. And because Amex collects fees from merchants each and every time customers swipe their shiny cards, that sounds like a recipe for plump profit. But the firm’s playing it safe, upping the cash it’s put aside – just in case its well-to-do customers start feeling the economic downturn like the rest of us – to over $1 billion. So despite all that flashy spending, Amex’s profit slipped 13%.
Why should I care?
The bigger picture: Big spenders, small hopes.
Credit card companies thrive when folks are spending more, and Amex’s customers will have been shielding the firm from the general trend last quarter. See, consumer spending’s been dropping off, with US retail sales falling for the second-straight month in March. But Amex’s caution could mean it’s now seeing worrying signs among its usually more financially resilient customers. And it wouldn’t be the only one: recent data showed that higher-income households grew more pessimistic in April.
Zooming out: The land of doom and gloom.
Consumer spending makes up two-thirds of the US economy, so the fact that more spenders might be thinking twice isn’t exactly reassuring. And the Federal Reserve’s latest assessment won’t inspire much confidence, either: the central bank believes the country’s economy has essentially stalled in recent weeks, which could bolster the cases of some economists who predict a recession in the second half of this year.
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