American Express (AXP): Consumer Not In A Coma

October 21, 2008 by Douglas A. McIntyre

R218533_855025To hear some economists talk, the consumer does not have a dime and Christmas will not come this year. No one has cash for anything beyond gas, heating oil, mortgage payments and a loaf of bread once a week.

American Express (AXP) earnings were hardly robust, but they beat analysts’ estimates which pushed the stock way up. The credit card company’s income dropped 24% to $815 million, which is still a lot of money.

Revenue rose slightly to $7.2 billion. But, these were not the figures from a company or an industry which is flat on its back.

The most encouraging number was that write-offs on the firm’s credit card base where 5.9%, up from 5.3% in the second quarter. Based on the assumptions that Q3 GDP was lousy, Amex customers continued to spend and bring in enough money of their own to pay their bills.

It is easy to say that credit card delinquency is a lagging economic indicator, because it is. But, for Amex the lag which was expected was not as bad as the lag that it got.

Since Amex customers tend to be well off, the economy may be in the process of breaking into two fairly distinct classes. The first is those people who have incomes low enough so that it puts them at the limit of what their pay checks can cover. The more well-to-do group may still have some gas in their tanks.

The fall in the stock market by have taken all the fun out of not being poor. For the time being, people are spending enough money to allow Amex to show a profit. A lot of egg heads did not think that was possible.

Douglas A. McIntyre