By: Jack Lynch, SVP, Chief Risk Officer and President, TriVerity
In this month’s edition of the PSCU Payments Index, PSCU continues to see a combination of optimism and uncertainty within the U.S. economy – and the related effects within the payments industry. As we approach the holiday shopping season, consumer spending remains strong as COVID-19 hospitalizations are on the decline. Yet, even as consumers are ready to buy, global supply chain disruptions – combined with labor shortages and surging fuel prices – are projected to impact ongoing economic recovery.
As we have been reporting in the PSCU Payments Index on the drop in credit card balances, we now look at credit card delinquencies in this month’s Deep Dive, where notable declines have coincided with government stimulus payments throughout the pandemic. While still currently well below pre-pandemic levels, overall delinquency rates tend to increase historically toward year end. We will closely monitor these seasonal trends, along with additional impacts of the sunset of most forbearance accommodations.
A sampling of key takeaways from our October report includes:
- Consumer spending remained strong for both credit and debit purchases, while concurrent declines were reported in the September Consumer Confidence Index, dropping for the fourth consecutive month. However, as global supply chain disruptions are projected to worsen, a shortage of truck drivers will likely result in consumers facing limited choices and higher prices this holiday shopping season.
- Inflation remains elevated as the CPI-U for September increased slightly at 5.4% year over year, representing an increase from the August result by 0.1%. This is a 13-year high, with notable increases in food, shelter, new car prices and home furnishings. Citing supply chain disruptions and weakening consumption, the International Monetary Fund reduced the 2021 U.S. growth forecast by one percentage point to 6%, while the 2022 growth forecast remains unchanged.
- Finding staff remains a top concern. The unemployment rate fell to 4.8% in September, with strong growth in wages as data shows available workers are being paid a premium. The economy grew by 194,000 jobs in September, far less than what was anticipated and fewer than the 366,000 added in August. The Bureau of Labor Statistics (BLS) report shows that the U.S. workforce actually shrank, with 4.3 million quitting their jobs in August. The Department of Labor reported new claims for unemployment benefits dropped by 38,000, finishing at 326,000 for the week ending Oct. 2.
- Credit card delinquencies (this month’s Deep Dive) have declined through the COVID-19 pandemic, influenced by the three stimulus/recovery payments, and are now 61 basis points lower than 2019 pre-pandemic delinquency rates. The September 2021 overall credit card delinquency rate is 1.30%. However, since this measure has been artificially suppressed through increased consumer liquidity, it will be important to watch for the closing of the 60-point gap when comparing to the 2019 monthly performance, especially with the sunset of most forbearance accommodations. In reviewing delinquency results by age demographic, it’s not a surprise that older consumers generally have lower delinquency rates for their respective demographic, with Baby Boomers having a delinquency rate of 0.97% for September 2021 compared to a delinquency rate of 3.73% for Gen Z for the same month.
- Consumer credit scores are on the rise. Aided by lower credit card balances and lower credit card delinquencies, overall credit scores for our fixed population for September 2021 was 737, seven points higher than pre-pandemic September 2019. Younger demographics benefitted most from the improvement, with Younger Millennials (25-32 year-olds) posting a 12 point-improvement compared to September 2019 at an average credit score of 705.
- Amazon has officially started the holiday shopping season with sales beginning on October 4 – even earlier than 2020, when Amazon’s Prime Days sale shifted from the summer to October 13-14. Other retailers are following suit, influenced by continued supply chain shortages for both labor and products, as they hope to boost holiday sales in an economic environment with elevated consumer liquidity.
As the holiday shopping season begins even earlier this year, global supply chain disruptions and labor shortages could result in consumers facing limited choices and higher prices. Some of the biggest U.S. retailers are even chartering their own cargo ships to combat these challenges and boost holiday sales. Over the next few months, we will continue to closely monitor consumer trends and the impact on holiday spending from the many economic variables currently in play.
Jack Lynch leads PSCU’s Fraud and Risk Management Operations area and is President of TriVerity, a PSCU company specializing in delinquency management. Jack has over 25 years of leadership experience delivering operational services, project management, client implementations, process re-engineering, account management, training and technology services.