By: Velera

Welcome to the July edition of the Velera Payments Index! Consumer credit spending continued to slow, while debit spending remained positive. The 12-month rate of inflation dropped to 3.0%, in line with where it was a year ago, and economic indicators and the Federal Reserve Chair hinted to a possible rate decrease in the fall. 

For this month, we revisit a Deep Dive into Travel, a discretionary spending activity which boomed in the post-pandemic era but now shows signs of moderation. 

The Consumer Confidence Index has remained in the same narrow window for the past 24 months, dropping in June to 100.4 from a slightly downward revised May result of 101.3. The University of Michigan Index of Consumer Sentiment decreased less than a point to 68.2 for June, with the slight drop attributed to expectations that inflation will continue to moderate as high prices and lower incomes impact personal finances. Jobs grew slightly more than expected in June with 206,000 jobs created, lower than the downwardly revised increase of 218,000 jobs in May. Job gains occurred in government, healthcare, social assistance and construction. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate for June increased to 4.1%, or 6.8 million people.

Key Takeaways

Key takeaways from the July 2024 edition of the Payments Index include:

• For June – much like the prior month – growth rates improved for debit and softened for credit year over year. Almost a third of the debit growth came from Money Services, with debit purchases up 4.3%, while credit purchases were down 1.5%, with over half of the decrease in the Goods sector. Debit transactions were up 3.3% and credit transactions were up 1.1% year over year.
• The Consumer Price Index (CPI-U) dropped more than expected in June, with the 12-month rate of inflation now at 3.0%. Gasoline was the largest contributor to the decline, followed by airline fares, used cars and trucks and communications. Increasing in June were shelter, motor vehicle insurance, household furnishings, medical care and personal care categories. Excluding the volatile Energy and Food sectors, the 12-month core CPI index was 3.3%, the smallest increase since April 2021.
• Year-to-date growth in the Travel sector (this month’s Deep Dive) was down, with credit purchases down 1.0% and debit purchases down 3.5%. After dramatic growth following the COVID-19 pandemic, continued growth has become more difficult to achieve, especially in light of the current state of the economy. Most categories within the Travel sector were down especially in Lodging (Hotel/Motel) and Airlines, with the exception of Cruise Lines. YTD through June, Cruise Line credit purchases were up 5.2% and debit purchases were up 6.0% compared to 2023. With their budgets tightened, consumers might feel they get more “bang for their buck” with a cruise vacation that includes lodging and food as part of the package.
• The credit card delinquency rate followed its seasonal pattern – increasing 10 basis points in June compared to May and finishing at 2.44%. Year over year, the June delinquency rate was up 50 basis points.
• Growth in total credit card balances accelerated in June, with a year-over-year increase of 5.5%. The average credit card balance was up 3.7% year over year, or $104. For May, credit card balances grew 5.1% YoY, or $32. This marked the first month-over-month increase for this measure in the past 14 months.

Checking In

We continue to monitor the following trend as we are in a presidential election year:

• Political Contributions — In the Political Organizations category for June 2024, 61% of credit purchases can be associated to the Democratic Party and 28% associated to the Republican Party, while the remaining 11% were mixed, with many including non-presidential candidate names. Similarly, 49% of debit purchases can be associated to the Democratic Party and 38% associated to the Republican Party, while the remaining 13% were mixed. For June 2024, the average credit purchase/donation to the Democratic Party was $39.66 and the average debit purchase/donation was $25.04. The average credit purchase/donation to the Republican Party was $32.31 and the average debit purchase/donation was $25.02. 

What Should Credit Unions Do Now? 

• Understand changes in your members’ purchase behaviors. Reductions in travel may lead to reductions in overall spend, because Travel represents approximately 10% of all overall credit spend. Focus on growth in other categories, such as Dining, which is showing the strongest growth for credit. 
• Many members accumulated card rewards during the strong spend periods following the pandemic. With household finances tightening, using these rewards for travel might prove beneficial. Where available, communicate the available travel options specifically to those who are holding point balances.
• Consider promoting debit for travel given its performance. Whether being frugal for purchases or lacking credit availability, debit has become a viable alternative in the travel space. Also remind members of the safety and security of using a card for these purchases.

Looking Ahead

The next Federal Open Market Committee (FOMC) meetings are not until July 31. While inflation remains higher than the Fed’s 2.0% target, Chair Jerome Powell told Congress cutting interest rates “too late or too little could unduly weaken economic activity and employment.” The test will be if rates can be cut in the fall as inflation continues to recede after the worst inflation spike in the past 40 years.

We hope the Velera Payments Index continues to provide valuable insights for our credit unions. We strive to help our credit unions make informed and strategic decisions about the latest trends in consumer sentiment and payment preferences to best serve their members.