By: Brian Caldarelli, EVP and Chief Financial Officer, PSCU
The June edition of the PSCU Payments Index finds continued, strong consumer purchasing activity amidst ongoing inflationary pressures.
During the month of May, the Consumer Price Index (CPI) increased 1.0%, bringing the inflation rate to 8.6% – the highest level in more than 40 years – with top growth sectors including Shelter, Gasoline and Food. The May 2022 unemployment rate remained unchanged again from the prior two months, at 3.6%, as more than 400,000 jobs have been added to the economy for each of the past 12 months. While we expect to see consumer spending increase due to strong job growth and low unemployment, the impact of rising inflation will influence consumer card preferences (credit versus debit), as well as sector activity.
The national average cost of gasoline continued to rise, reaching $5 per gallon in mid-June. Worldwide demand for petroleum, influenced by the ongoing war in Ukraine as well as the easing of COVID lockdown restrictions in China, is expected to continue impacting domestic U.S. gas prices well into 2023.
In this month’s Deep Dive, we explore the rapid rise of inflation, including the evolution of consumer behavior and spending growth over the past 17 months, in which the rate of inflation has risen from 1.4% to 8.6%.
Key takeaways from our June report include:
- The Consumer Price Index (CPI-U) increased on an annual basis to 8.6% in May, which was a 1.0% increase from April – and the highest level of inflation since 1981. The Fed increased interest rates by 75 basis points on June 15, its largest rate hike since 1994, in an attempt to curb inflation, which will likely adversely impact job growth and increase unemployment. Aggressive rate hikes will likely continue until inflation returns to an acceptable level.
- Consumer spending on cards continues to be strong, with credit purchases up 15% and debit purchases up 6% year over year. Gasoline posted top growth rates for all sectors in both credit and debit purchases in May and will continue to grow in June as the U.S. average price has surpassed $5 per gallon. Travel and Entertainment were second and third, respectively, for both credit and debit purchases in May. Each sector in credit purchases posted double-digit growth, with the exception of both Goods and Services, which were each up 8% year over year.
- Consumer data indexed to January 2021 (when inflation was 1.4%) highlights the trend of greater growth in credit purchases (over debit) beginning in May 2021 and continuing through May 2022. Influenced by multiple criteria, including pent-up demand in Travel and Entertainment, cooling of purchases in the Goods sector, strong activity at Restaurants and high inflation fueled by the Energy sector, the trend is expected to continue – and even widen – with waning consumer liquidity.
- The average credit card balance for May 2022 was $2,724, up 2.9% (or $76) year over year. May marked the third consecutive month in which year-over-year growth was over 2%. The credit card delinquency rate for May was 1.43%, 27 basis points lower than pre-pandemic May 2019 levels.
The Payments Index continues to evolve along with consumer preferences and behaviors, and we continue to emphasize our monthly Deep Dive while focusing on year-over-year changes. Our Deep Dive topics also take a closer look at the payments preferences of different generations, where applicable, along with contributing factors that impact consumer spending. We hope our credit unions can take these relevant insights to help make informed, strategic decisions.
Brian Caldarelli is responsible for the overall financial strategy and strategic direction of PSCU, as well as risk management, legal and corporate governance. With more than 20 years of experience, including senior leadership roles with Bank of America and Acuity Brands, Caldarelli has established a reputation for building world-class teams and developing financial and business goals that support corporate strategy and growth objectives.