Backpack with school supplies

The PSCU Payments Index September 2021: Consumer Behavior Remains Consistent in the Face of Uncertainty

By: Kenna Smith, Vice President of Marketing Operations, Advisors Plus, PSCU

In this month’s edition of the PSCU Payments Index, PSCU continues to explore the ongoing impacts of the Delta variant, which are posing some renewed economic uncertainty. We continue to see increased consumer spending, even as consumer confidence dropped to its lowest level (95.2) since February. The S&P 500 reached a record high earlier this month, topping 4,500, while the Consumer Price Index (CPI) remained elevated at 5.3% for August. The Index looks at the impact of these forces and takes a deep dive into Back-to-School-related merchant categories.

A sampling of key takeaways from our September report includes:

  1. Consumer behavior remained consistent without substantial fluctuations for the third straight month as spending remained strong.
    As summer comes to an end, consumers have remained resilient and showed strong spending despite continued uncertainty surrounding the economic impacts of the pandemic, dramatically higher hospitalizations, fewer virus mitigation measures in place and new White House strategies to improve vaccination rates.
  1. While the CPI-U for August remained high at 5.3% year-over-year, it represents a small decline from the July result by 0.1%.
    The elevated CPI is still causing higher labor and material costs for consumers, although the less-than-expected increase could be a sign of dampening inflation. Nonetheless, supply chain and labor issues are still near-term concerns.
  1. The sunset of the eviction moratorium and supplemental unemployment assistance (CARES Act), along with the August decline in the Consumer Confidence Index, point to a greater likelihood of financial challenges for a portion of the population in the coming months.
    All of the incremental unemployment benefits that started as part of the CARES Act in March of 2020 ended as of Sept. 5, while the sunset of the eviction moratorium in August could impact 750,000 U.S. households by the end of 2021. Despite the unemployment rate dropping by 0.2 percentage points to 5.2%, the Bureau of Labor Statistics reported on Sept. 3 that job creation for August was only 235,000, well below the July number, well below the 2021 monthly average of 586,000, and well below the expectation of 720,000. As the struggle to lure and retain workers continues, many businesses are expanding benefits in the hopes to entice hourly workers, with companies such as Amazon offering to pay college tuition for bachelor’s degrees at various universities nationwide.
  1. Back-to-school related purchases (this month’s Deep Dive) saw purchases up 18% for credit and 12% for debit as compared to August 2020, when in-person learning was impeded by the pandemic. For these select merchant categories, credit purchases outpaced debit for both Target (credit up 21%, debit up 11%) and Walmart (credit up 12%, debit up 11%).
    The National Retail Federation (NRF) anticipates that back-to-school spending for the 2021 season will be up by 7.5% compared to 2020 as many families plan for their students’ return to in-person classes from virtual learning at this time last year. PSCU’s findings are in line with this, reporting an increase influenced by multiple factors, including the challenging credit activity/growth environment in 2020 as debit activity experienced substantial growth during that time.
  1. Credit card portfolio balances (for our same-store population) in August 2021 held steady, with another 0.2% increase. These balances are down 12% compared to the pre-pandemic August 2019 timeframe. There has been a one percentage point improvement for each of the past two months.
    PSCU’s Advisors Plus Consulting forecasts that credit card balances will increase an average of 2% by the end of 2021, enabled in part by a robust holiday season and continued inflationary pressure on prices.
  1. Card Present credit transactions for August 2021 were up, representing 62% of all transactions for the month. This is up three percentage points from August 2020 (59%) but still below the pre-pandemic August 2019 levels (68%). Card Present debit transactions remained close to August 2020 levels, finishing at 71%.
    We continue to see increases in Card Present (CP) volume, with year-over-year growth in CP credit transactions for August 2021 up 25% compared to 2020 and up 2% compared to 2019. CP debit transactions were up 11% for August 2021 compared to 2020 and up 3% compared to 2019.

Looking Ahead

The U.S. continues to struggle with a surge in infections amid the Delta variant, the impacts of natural disasters, a dimming outlook for the airline industry that was beginning to rebound, an end to the eviction moratorium and supplemental unemployment assistance, along with an ongoing battle for workers in a tight U.S. job market – all of which will affect consumer behavior in the coming months. While much uncertainty remains, the outlook is not entirely negative. As big box retailers are already stocking inventory and the holiday shopping season gets underway, Mastercard anticipates 2021 holiday sales to increase 7.4% year-over-year, with this year expected to be the strongest holiday retail season on record. We will monitor these trends in the coming months, including earlier buying than usual driven by supply chain issues and labor shortages.

Kenna Smith is vice president of marketing operations for PSCU’s Advisors Plus Consulting. In this role, she oversees B2C marketing and operations for Advisors Plus. Smith has over 25 years of product and operations experience in the financial services industry.