Why is the pawn industry generating so much attention as a "barometer of the economy"? Reports show that the three publicly traded pawn companies reported significantly increased earnings during the last two fiscal quarters. A historic increase in gold value and the "Cash for Gold" craze have shown record numbers of people trading in old jewelry and coins for cash. Perhaps the perception could be based on speculation that in hard times, people pawn. However, there is a larger, more compelling story about the pawn industry.


Pawn Shops: Economic Barometer?
National Pawnbrokers Association



Why is the pawn industry generating so much attention as a "barometer of the economy"? Reports show that the three publicly traded pawn companies reported significantly increased earnings during the last two fiscal quarters. A historic increase in gold value and the "Cash for Gold" craze have shown record numbers of people trading in old jewelry and coins for cash. Perhaps the perception could be based on speculation that in hard times, people pawn. However, there is a larger, more compelling story about the pawn industry.

The National Pawnbrokers Association reports that there are over 30 million pawn store customers per year and they appreciate this unique form of credit and tend to borrow only what they need, as evidenced by the relatively low national average loan amount of $80. NPA President and pawn shop owner Dave Crume says, "Pawn customers repay their loans and redeem their collateral at a correspondingly high average national redemption rate of 80 percent. These parameters appear to be holding constant, despite the current economy."

The industry as a whole is impossible to track, as only publicly traded pawn corporations are required to report their earnings. Most of the 13,000+ pawn stores in the US are small, privately owned businesses and do not report their earnings publicly. American businesses across the board are experiencing fiscal turmoil, unprecedented layoffs and a severe credit crunch. One of the industries that have seemingly grown during the recent financial crisis is the pawn industry. The three publicly traded pawn corporations at least doubled their stock values within the last 12 months. However, these earnings are not solely attributed to pawn loans or the retail side of a pawn business. They incorporate a complex mix of financial services as well as new business derived from the sky-rocketing price of gold and increased revenue due to business consolidation. It is inaccurate to take a snapshot of these companies which control less than 10% of the pawn shops in the US and determine that the industry is prospering.

The pawn business model is diverse, including retail, jewelry sales and pawn loans. While one element of the pawn business may thrive in a slow economy, such as pawn loans, other elements such as retail sales, will decrease. Dave Crume notes, "While many of our association members are making it through the dip in the economy, there are many pawn shops in the US that are struggling and closing. Just like all sectors of the American economy, the pawn industry is challenged by the recent economic trends."