By: Brian Scott, SVP, Chief Growth Officer at PSCU
The July edition of the PSCU Payments Index finds that while overall consumer spending remained strong through June, growth in purchases continues to outpace growth in transactions, largely due to ongoing inflationary pressure.
The Bureau of Labor Statistics (BLS) reported the June 2022 unemployment rate was unchanged from the prior three months, at 3.6%, as 372,000 jobs were added to the economy last month – almost at the pre-pandemic level of 3.5% and nearing full employment. This lower job creation number, down from 500,000 jobs added monthly over the past year, will be a welcome sign to the Federal Reserve, given their efforts to curb inflation with higher interest rates.
The Consumer Confidence Index decreased in June to 98.7, its lowest level since February 2021. Consumers continue to be concerned about overall inflation and its impact on gasoline and food prices. While still high, national gasoline prices have dropped to $4.77 per gallon and are up by 53%, or $1.65, from a year ago.
Summer vacations are in full swing and consumer spending is poised to remain elevated, with the added federal holiday of Juneteenth observed on June 19. The volume of passengers screened by TSA for the Independence Day holiday period outpaced 2019 and 2021, despite airlines having record levels of flight cancellations and delays due to weather and staffing shortages. Amazon and other “big box” retailers have their Prime Day and related sales events in July, and with an overstock of goods at many large retailers, discounts could be larger than expected to move merchandise.
Key takeaways from our July report, which features a Deep Dive on the Travel and Entertainment discretionary spending sectors, include:
- Consumer spending on cards remained strong, with credit purchases up 16% and debit purchases up 7% year over year. Current inflationary pressures are keeping growth in purchases higher than growth in transactions. For June, growth in overall credit transactions were up 12%, while debit transactions were up 3%.
- The Consumer Price Index (CPI-U) increased on an annual basis to 9.1% in June, which was a 1.3% increase from May, heightening pressure on the Fed to reign in the highest level of inflation since 1981. Top growth sectors included Gasoline, Food and Shelter. The Fed will meet on July 26-27 to evaluate future interest rate hikes, with the hopes of creating a soft landing from inflation and ultimately avoiding a recession.
- While discretionary spending in the Travel and Entertainment sectors remains strong, with year-over-year credit purchases up 26% and debit purchases up 7% for the combined sectors, transaction growth is now an important metric to watch, looking beyond the inflationary impacts to understand shifting consumer trends. For June, transaction growth for the overall Travel and Entertainment sectors was up 26% on credit and up 19% on debit as compared to June 2021.
- Notable transaction growth within this grouping included movie theaters and rentals (up 147% for credit and up 96% for debit). The average credit purchase was $27, up 17% over June 2021, and the average debit purchase was $23, up 16% year-over-year.
- Air travel with non-U.S.-based carriers also grew, with transactions up 104% for credit and 42% for debit. Transaction growth for U.S.-based airlines was down 1% on credit and down 20% on debit, all compared to June 2021. This lower transaction growth could signal fewer bookings for the fall influenced by higher ticket prices and the erosion of consumer confidence in U.S. airlines.
- After coming to a stop during the pandemic, purchases and transactions within the Cruise industry remain strong despite the rise of inflation. Cruise purchases were up 157% on credit and up 133% on debit, with transactions up 185% on credit and up 132% on debit.
- The largest portion of purchases in the Travel sector was in Lodging, which includes hotels, motels and merchants like Airbnb, Vrbo and Vacasa. These purchases represent 42% of all credit card Travel sector purchases and 41% of all debit card purchases. Lodging credit purchases were up 19% and debit purchases were down 8%, while credit transactions were up 11% and debit transactions were down 9%.
- The average credit card balance for June 2022 was $2,733, up 3.5% (or $93) year-over-year. June marked the fourth consecutive month in which year-over-year growth was over 2%. The credit card delinquency rate for June was 1.54%, 20 basis points lower than pre-pandemic June 2019 levels.
The Payments Index continues to evolve along with consumer preferences and behaviors. With the ongoing impacts of inflation, transaction growth will be an important metric we will continue to watch as a key indicator of shifting trends. We hope our credit unions are able to use these insights to help make informed, strategic decisions.
Brian Scott, SVP, Chief Growth Officer at PSCU, oversees a large and diverse group of our most critical client-facing teams. He partners with industry leaders in payments and community credit unions to create competitive payments programs. Scott joined PSCU in December 2015 as SVP of Vendor Alliances with more than 22 years of experience serving credit unions.