With less consumer credit available, as many credit card issuers reduce spending limits and raise fees, consumers are increasingly turning to debit cards or cash at the checkout counter, reports The Associated Press (“More Customers Resume Using Old-Fashioned Cash” Nov. 23, 2008).

Retailers such as Wal-Mart, J.C. Penney, and Target say they have noticed a definitive shift away from credit card use in recent months. In fact, for the first time since 2001–2003, Target has seen a reduction in credit card use at its stores.

And, for the first time in 17 years, J.C. Penney reports that it has experienced spending swings around payday cycles, when consumer spending drops immediately before a pay period and increases significantly following immediately after a pay period. The last time the department store chain experienced notable payday swings was in 1991 when the United States was about to enter a recession, said Ken Hicks, Penney’s Chief Merchandising Officer.

Even at Wal-Mart, where spending swings are often more common, consumer spending around paydays has become more pronounced especially since September, indicating that shoppers appear unable to purchase necessities just days before they receive their paycheck, said Tom Schoewe, Wal-Mart CFO. After growing at rates in the double digits over the past three years, credit card payments at the big-box store giant have fallen by 7.4 percent in the last year compared to all other forms of payment.

Consumers may be using credit cards less not only due to decreased spending limits, but also because, in general, credit is tighter; credit card issuers are extending fewer credit card offers to consumers, particularly those who are heavily indebted or who have found themselves newly unemployed.

Data from the nation’s major credit card issuers, Visa, Master Card, and American Express, indicates that the number of credit cards a consumer possesses fell 5 percent last quarter compared to the previous quarter, said Laura Nishikawa, an analyst with Innovest Strategic Value Advisors, a Wall Street investment research firm.

“Consumers are really struggling to find sources of cash to make purchases,” said Scott Hoyt, senior director of consumer economics for Moody’s Economy.com. “The rapid job losses are taking a big bite out of labor incomes. Obviously, it’s making it much more difficult to borrow.”

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