Happier holidays but January blues?

A month ago, it looked like Scrooge, rather than Santa, was going to dominate Christmas 2005 spending, but a report this week from the Wachovia Economics Group offers brighter news for retailers, particularly those targeting a lower-end demographic: Consumers apparently seem poised to pull out the plastic to keep pace with holiday spending.

Consumers are responding to tighter financing conditions by indicating a renewed interest in using credit, Wachovia’s report said. Increased use of home equity lines and cash-out refinancings over the last several years likely kept growth in consumer installment debt low, but the trend may be about to turn as rates on home equity lines are not nearly as favorable as a year ago, interest rates are on the rise, and housing prices are showing signs of a slowdown.

This trend is likely to be strongest among lower-income shoppers, says the report. According to a survey conducted by the Cambridge Consumer Credit Index, the credit-use intention index rose to 89 for shoppers with incomes less than $25,000 per year, but dropped to 43 for shoppers with incomes greater than $75,000 per year. Likewise, respondents with less than a high school education and those between ages 18 and 34 showed the greatest intention to use credit for holiday spending, whereas those figures dropped steadily for respondents with a high school diploma or a college education.

The realities of higher home heating bills—originally thought to put a damper on holiday spending—are now not expected to have a significant effect until after the New Year. But the report cautions that when the holiday season ends and both the credit card bills and the home heating bills hit at the same time, consumers will sharply rein in spending.