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Credit scores rise, but consumers still wary

HIGH POINT - The current economy is like bumper-to-bumper traffic moseying around an accident on the freeway, according to Kenneth Goldstein, an economist with research firm The Conference Board.
     It will be slow going the next few miles - and not just for the furniture industry.
     "You poke the economy anywhere and you're mostly going to get the same story: that things are improving. But very slowly, and there's just no momentum to push us out of this," Goldstein said.
     But despite the sluggish improvement, consumer habits in regards to credit are beginning to change, he and other experts say. Consumer credit scores are slowly rising. Card lenders are issuing fewer new cards with lower credit limits. Some retailers report less reliance on credit than in the past to finance home furnishings purchases.
     Data from Equifax show that the average U.S. consumer credit score rose to 704.3 in July, the highest it has been since 1998. The higher the score, the less likely a consumer falls behind on debt. (The highest possible score is 850.)
     That could indicate that consumers are more reluctant to take on debt, Equifax officials indicated in a Reuters story this month. And Goldstein said the improved credit scores haven't lead to any greater use of credit.
     "Whether their credit score is good or bad, people are just not going to their credit card. Not in this kind of an environment," he said.
     Irwin Greenberg, president of five Thomasville stores in Orange County, California, has seen some of that reluctance to use credit this year. Greenberg, who extends consumer credit using a finance program offered by Thomasville through General Electric, said more consumers have been paying up front for purchases.
     That includes payment by check or personal credit cards offering rewards such as frequent flyer miles, gifts and hotel rooms.
     "You find a lot of people using those (cards) today to get the benefits. Especially in higher-end stores," he said.
     In addition, more shoppers are saving up the cost of an item and paying the full price at time of purchase, he added. "People don't want to go in debt, so when they make a purchase they have the money for it and they just pay by check."
     These payment trends are a reflection of the economy, Greenberg thinks. Consumers are cointinuing to cut their costs, especially in home furnishings.
     The greater number of consumers paying up front also is likely to be a result of the end of no-interest, no-payment offers, he said. New federal regulations that took effect in February mean that retailers can no longer offer the no-payment option, although they can still make offers with no down payment and no interest for a specified period.
     Greg Pittman, vice president and general manager of GE Money Home Furnishings, which provides consumer financing options to retailers in the furniture industry, said that his firm is focusing on having the tools retailers need to complete purchases in this environment.
     Consumers are paying down debt faster, delinquencies are low and some retail-ers report customers are more hesitant to take on big debts, he said. Those trends have a big impact on what products GE Money offers, he added.
     "I think for us it's a constantly moving target. We're always evaluating our criteria and making adjustments as the market changes. We really try to underwrite to the market as we see it as opposed to the market that we'd love to have," Pittman said.
     While paying up front in cash is an option, a number of consumers seem hesitant to make big outlays. And some of the easy sources of credit that existed before the recession, like home equity lines, have become harder to get, he said.
     But consumers continue to want to compartmentalize purchases with popular programs like private label credit cards, he added. Many consumers like to have a dedicated line of credit for a specific store or a type of purchase, such as furniture or electronics, rather than use a general-purpose bankcard line of credit.
     The private label cards also enable a consumer to take advantage of offers, promotions and terms that have fixed ordeferred interest, he said.
     "Given their behavior, and given what's happened, I think it's made the private label product something that's even more beneficial," Pittman said.
     However, he added, GE Money also is ready with equal payment or deferred interest programs for the hesitant customer. It's important for stores to have those tools, he said.
     "Whichever way the consumer tips, we want to make sure we're flexible enough to have the products and things that are going to meet their needs," Pittman said.
     He said that while he was at the Las Vegas Market this month, he heard more talk from retailers about focusing on fundamentals of business growth and less about cutting costs and inventory, which he said they've already done.
     Those fundamentals include advertising in radio and in newspapers, more focus on loyalty programs and efforts to increase foot traffic to stores.
     Back at the Conference Board, economist Goldstein said he doesn't expect the economy to get much worse.
     But the organization recently reported that the eight million jobs lost in the recession could take two to five years to replace at the economy's current pace. It also said that leading economic indicators suggest this year's slowdown could extend into the early months of 2011, and that consumers are saving more - almost 6% of their income in the first half of 2010.
     "The consumer is not going to move until employment does and employment is not going to move until consumer spending does," Goldstein said.

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