February spending trends: Seasonality reigns supreme amid mixed economic outlook
PSCU/Co-op Solutions SmartGrowth team payments trends report (spending data from February 1-29)
February spending was flat compared with the prior month, in line with normal seasonal trends. A mixed bag of economic results is causing consumers to take a wait and see attitude toward their household spending.
Inflation bumped up in February to a higher-than-expected 3.2% annualized rate, led by rising prices at the fuel pump, which jumped 3.8%. Airline fares grew by 3.6%, clothing prices increased by 0.6% and used vehicles by 0.5%.
Meanwhile, the labor market showed divergent results for the month, with nonfarm payrolls increasing by 275,000 in February. However, the unemployment rate rose two basis points to 3.9%, and wages grew by only 0.1% for the month, below consensus projections. The largest job gains were seen in the health care sector, followed by government employment, and food services and drinking establishments.
Most economists expect the Fed to hold its benchmark borrowing rate steady until June or later, in the hope that inflation will settle closer to its 2% target rate.
Following a period of steady improvement, The Conference Board’s Consumer Confidence Index dipped in February to 106.7 from a downwardly revised figure of 110.9 in January. According to the Conference Board’s chief economist Dana Peterson, “The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the U.S. economy. The drop in confidence was broad-based, affecting all income groups except households earning less than $15,000 and those earning more than $125,000.”
Overall, Co-op Solutions credit union portfolio data shows that February transaction volume rose by 6.0% in Credit and 1.9% in Debit on a rolling 12-month basis, while month over month volumes were down slightly in Credit (-1.0%) and up by just 0.4% in Debit.
The PSCU/Co-op Solutions SmartGrowth Team members are closely watching the following key spending trends this month:
- February events support seasonal upticks in spending.February may be the shortest month on the calendar (even with this year’s Leap Day), but it is packed with special occasions that drive seasonal lifts in spending within targeted merchant categories.
This year’s Super Bowl was the most-watched NFL championship game in history, with an estimated 123.7 million people tuning in across various platforms. It’s hard to determine the full economic effects of this annual event, but this year it likely fed a 3.6% month-over-month transaction volume lift in the Dining & Entertainment category in Credit, including a 12.1% jump in Caterers. In Debit, the category grew by 2.8% for February, including a 14.8% rise in Caterers.
There’s a big reason why Florists love Valentine’s Day, and 2024 didn’t disappoint, with this Specialty Retail classification blooming by 85.3% in Credit and 92.5% in Debit month-over-month. Jewelry merchants rang up more modest lifts of 6.3% and 11.0%, respectively.
Auto Dealers traditionally use the Presidents’ Day weekend to promote major markdowns on their latest models. Holiday sales drove increases in February month-over-month transaction volumes in the Auto category of 6.2% in Credit and 5.9% in Debit.
- Inflation continues to dampen grocery spend.Inflation may be gradually easing, but shoppers still face grocery prices that are roughly19% higher than they were prior to the pandemic. This is causing budget-conscious consumers to modify their checkout habits, including pivots to generic brands, smaller quantities and discount stores.
According to Co-op Solutions client portfolio data, transaction volume in the Grocery merchant category is up 7.8% in Credit and 1.9% versus a year ago on a rolling 12-month period. But month-over month volumes fell in January and February on Credit, and dipped by -12.0% in January on Debit, before flattening out in February.
Prices for some staples like milk, fruit and eggs are now below their peaks, helping to lower overall inflation from its high of over 9%. Discount stores continue to remain a popular alternative for shoppers, with Aldi recently announcing plans to open an additional 800 stores in the U.S. by 2028.
“Consumers are pushing back on high prices, causing both producers and stores to make adjustments,” said John Patton, PSCU/Co-op Solutions Senior Payments Advisor. “As long as inflation continues to hit Americans’ pocketbooks, households will scale back their spending to compensate.”
- Have Credit balances peaked?Consumers have been on a credit spending binge for the past few years, but the cumulative impacts of high inflation and stagnating wage growth may have finally given them pause.
According to Co-op Solutions credit union client portfolio data, credit balances were 14.15% higher in February 2024 compared with the year prior, continuing a trend of year-over-year balance growth dating back to January 2022. But it was also the first time since February 2023 that aggregate portfolio balances fell month-over-month, dropping -3.22% from January 2024.
According to Bankrate, 36% of Americans have more credit card debt than savings, and around half of all credit card holders now carry balances. As Americans’ debt burden rises, more financial institutions are turning down borrowers’ loan requests. Another Bankrate.com survey found that half of U.S. loan applicants were denied in the past two years, as lenders have tightened their credit policies in response to rising interest rates. This is happening as a growing number of U.S. households rely on borrowed funds to cover their daily expenses.
“Although transaction volume on Credit is up by 6.0% year-over-year on a rolling basis, it has fallen for the past two months,” said Ryan Prentice, Director, SmartGrowth Consulting Services at PSCU/Co-op Solutions. “This indicates that credit union members are approaching their borrowing limits, and will likely continue shifting back to Debit as we move further into 2024.”
What Credit Unions Should Do Now
As revolving balances balloon and lenders tighten their credit policies, credit unions should make sure they are doing all they can to serve their members’ borrowing needs while protecting the institution. Spring is a great time for credit unions to review their Credit portfolio to ensure their members’ financial positions remain strong and offer line increases, if warranted. It’s also a great time to remind members of the convenience and safety of using Debit for their everyday spending and recurring bill pay needs.
Spring is around the corner, and members are starting to plan their summer getaways. It’s time to dust off loyalty programs and offer targeted “spend and get” campaigns on airlines, hotels, car rentals and other travel needs, to ensure members keep their credit union card top of wallet. Also, with prices elevated and savings dwindling, many consumers are prioritizing cash over other rewards. Credit unions should offer a cash back option in their Credit and Debit loyalty programs.
More information on the PSCU/Co-op Solutions SmartGrowth Team can be found here.
About PSCU/Co-op Solutions
PSCU/Co-op Solutions is the nation’s premier payments credit union service organization (CUSO) and an integrated financial technology solutions provider. With over four decades of industry experience and a commitment to service excellence and innovation, the company serves more than 4,000 financial institutions throughout North America. PSCU/Co-op Solutions leverages its expertise and resources on behalf of credit unions and their members, offering an end-to-end product portfolio that includes payment processing, fraud and risk management, data and analytics, digital banking, instant payments, strategic consulting, collections, ATM and POS networks, shared branching and 24/7/365 member support via its contact centers. For more information, visit pscu.com and coop.org.
