By: Velera 

Welcome to the May edition of the newly rebranded Velera Payments Index! Consumer spending saw modest growth in April, aligning with the slowing economic indicators that could stimulate the Fed into making rate cuts later this year. This month’s Deep Dive explores the Overall Food sector, where we see grocery store spending maintaining the largest allocation of spend across both credit and debit. Food costs continue to eat up the highest percentage of household budgets in more than 30 years due to stubbornly high grocery and restaurant prices.

After a downwardly revised March result (103.1), the Consumer Confidence Index dropped to 97.0 in April. The University of Michigan’s Index of Consumer Sentiment decreased 10 points to 67.4 for May. The drop in sentiment spanned all age groups, income levels and education levels with concerns about inflation, unemployment and interest rates. Job growth slowed more than expected in April, and the U.S. Bureau of Labor Statistics reported that the overall unemployment rate for April ticked up to 3.9%, or 6.5 million people. 

Key Takeaways

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

• For April, growth rates were positive, but only up modestly year over year. Debit purchases were up 3.2% and credit purchases were up 1.1%. Debit transactions were up 2.7% and credit transactions were up 2.2% year over year.
• The Consumer Price Index (CPI-U) increased 0.3% in April, while the 12-month rate of inflation was 3.4%. Shelter and Gasoline again contributed to more than 70% of the increase. Excluding the volatile Energy and Food sectors, the core CPI index increased 0.3% from March, putting the 12-month Core CPI index at 3.6%. 
• While there was positive growth in Overall Food purchases (up 1.8% for credit and up 2.5% for debit), consumers are spending slightly less on average in the Grocery Store & Supermarkets segment, which represents the largest portion of Overall Food. The average credit purchase at Supermarkets was $52.98, down 1.6% year to date compared to 2023. The average debit supermarket purchase was $52.09, down 0.5% for the same period. While consumers are spending roughly the same for food in the first four months of 2024 as they did in the same time period in 2023, the choices they are making in their shopping baskets or at restaurants is what may have shifted since last year.
• For April, total balance transfer dollars were more in line with seasonal changes, down 4% year over year. The volume of balance transfers was down 18% compared to April 2023. The typical seasonal peak in March was greatly reduced and may have spilled into April activity, with income tax filings due on April 15. The average amount of balance transfers was up 16%, or $572, at $4,146. With rising credit card delinquency rates and liquidity challenges, this trend could be a warning sign for credit unions, as higher interest rates could be leading to members utilizing fewer offers. 
• The credit card delinquency rate continued to decline in April, finishing at 2.34%. Compared to March, the delinquency rate dropped 8 basis points, while the percentage of balances delinquent increased 53 basis points (up from 1.81%) year over year.

What should credit unions do now? 

• Gauge your success. Do you see similar growth rates and mix of transactions for your credit and debit portfolios? Leverage tools like Member Insight to see how your credit union is performing.
• Engage with your members. Your members are dining out and purchasing food, most likely paying with a debit and credit card. Do you have account holders with low or no usage in these segments? Consider implementing a usage stimulation campaign to motivate them to use your card.  

Checking In

We continue to monitor the following trends:

• Political Contributions — As a result of the differences in the Presidential primaries, year-to-date political contribution dollars were higher in 2020 compared to 2024. Credit purchases were down 8%, while debit purchases were down 25%, for the cumulative year-to-date 2024 versus 2020. 
• Income Tax Prep and Tax Payments — In the Tax Payment category for the timeframe of January to April, the average credit purchase was up 6.2%, at $673 while the average debit purchase was up 6.3%, at $266. For the same timeframe, credit purchases were up 4.5% for Tax Prep Services and up 4.7% for debit purchases. Merchants in this category include local tax and accounting service providers, as well as larger tax preparation firms like H&R Block, Jackson Hewitt and Liberty Tax.

Looking Ahead

The slowdown in the economy may finally be here. The Federal Reserve decided to hold interest rates steady in their May meeting, which indicated that the Federal Open Market Committee (FOMC) does not anticipate a rate cut until there is confidence that inflation is moving downward sustainably — which may not be until late summer. 

We hope the Velera Payments Index continues to provide valuable insights. 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.