Americans Are Partying on Their Credit Cards, but Will They Pay Their Debt?

Financial services firm American Express said spending with its credit cards was up from a year ago, as consumers shelled out on travel and entertainment. But the company also raised its provisions for credit losses, suggesting concern about potential failure to pay credit card bills.

On Friday, the company reported total revenues of more than $15 billion, a 13 percent improvement from a year ago. This was driven by high loan volumes and increased card spending. U.S. consumer card members' spending jumped 9 percent for the year through September, helped by strong discretionary spending.

"Travel and entertainment spending remained robust," Stephen Squeri, chairman and CEO of American Express, said in a statement. That segment of the company's business saw a jump of 13 percent, he noted.

"Restaurant spending was again one of our fastest-growing [travel and entertainment] categories, and our Resy restaurant platform continued to generate high levels of user engagement, marking another quarter of record reservations," he said.

Resy offers American Express card owners special access to fancy and exclusive restaurants around the world.

The company saw a growth in its millennial and Generation Z consumer bracket, the company said.

"Spending by these customers was up 18 percent in the U.S. from a year earlier, and they accounted for more than 60 percent of all new consumer account acquisitions globally," Squeri said.

The results seemed to track with recent trends that show that consumers are still spending at a healthy clip, even as they grapple with an environment of high interest rates and elevated prices. In September, Americans spent billions on retail and food services, and many employers are still keeping people working, strengthening their ability to spend, government data showed earlier this week. And shoppers report that they are willing to fork out cash for gifts during the upcoming holidays.

American Express said that its credit numbers were solid in the quarter, as write-offs and delinquency rates were below pre-pandemic levels.

But the company also appeared concerned about the outlook for consumer spending over the coming year, raising its provisions for credit losses across its different segments to a total of $1.2 billion, a 58 percent increase from a year ago.

This may be partly due to worries that the economy could slow down as the Federal Reserve keeps interest rates elevated in its efforts to cut inflation. Last week, a survey suggested that Americans are becoming increasingly pessimistic about the state of the economy over the coming 12 months, saying they feel high prices are probably going to stay higher and hurt their financial condition.

On Thursday, the central bank's chairman, Jerome Powell, suggested that in its fight against inflation, there may be some bumps in reaching its target of 2 percent. In September, prices accelerated 3.7 percent.

"The macro fears are weighing on the entire industry," according to Ben Elliott, an analyst at Bloomberg Intelligence. "When people are afraid of the recession to come, Amex can't escape what's weighing down the entire sector."