July spending trends: Spending shifts as rates rise
CO-OP Payments Trends Report (Spending Data from July 1-31)
RANCHO CUCAMONGA, CA (August 16, 2022) — The Fed is doing all it can.
Following another strong jobs report for July, the Federal Reserve is committed to staying on its path of raising rates, in an effort to tamp down inflation that remains at 40-year highs.
The U.S. added 528,000 new jobs in July, keeping unemployment at a low 3.5% rate. That is certainly good news for workers, but the cost of living keeps rising as U.S. consumers deal with annualized inflation hovering around 9%. The Federal Reserve raised the Fed Funds rate another 75 basis points at its July 27 meeting, and it is almost assured of doing so again at its next meeting in September.
Co-op’s July credit union card portfolio data exploited credit’s growth year-over-year at a 42.8% increase in purchase counts, while debit remained flat year-over-year at a mere 1.6% increase. Credit’s growth highlights the stark reality that consumers’ spending habits have shifted, with most categories showing modest to significant increases. Main categories in credit reflecting this consumer spending shift are computers, gas, grocery, retail, primarily discount stores, medical and travel.
Month over month results from June 2022 to July 2022 across most categories in both credit and debit showed very little change. However, some exceptions included strong growth in Campers and Camping, Gambling and Entertainment, and Sports and Recreation, with declines in Education, Home Improvement, Auto Rental, Airline, Medical and Political Giving.
Here are some of the key spending trends Co-op’s SmartGrowth team are watching closely this month:
#1: Staycations are here to stay
According to Co-op’s month-over-month credit union portfolio data for July, overall travel spending was up modestly at just over 3% in debit and credit. But a deeper look into the data shows that Airline and Auto Rental spend were down for the month. Meanwhile, the Camping and Campers category showed strong double-digit increases in both debit and credit for the month, the largest among any major classification code. Spend at Golf Courses was also up by around 9% for the month. These trends indicate that in light of rising inflation, consumers continue to stay close to home, forgoing longer vacations to cross-country and international destinations.
Despite these weaker recent trends, the Travel category is still up by 59% year over year in credit and 25% in debit with largest increases occurring in airlines at 55% increase in credit and 14% increase in debit, evidence that a resilient public has ventured out following the darkest days of the pandemic.
“More people are headed to the golf course and campsite due to the pandemic-induced changes in habits over the past three years,” said John Patton, Co-op Senior Payments Advisor. “These experiences represent freedom, but with a dose of budget consciousness. We see spending in travel categories like airline and lodging up significantly year over-year, but the staycation habits developed over the past few years remain strong.”
#2: Furniture Spending Jumps Up as Supply Worries Ease
Although supply chain issues have been a constant source of frustration for consumers and retailers alike over the past year, they are finally beginning to ease, as July saw a marked shift in spending in the Furniture category. Following double-digit declines in June, spending grew by nearly 8% in both debit and credit in July, in a possible nod to back-to-school spending as retailers tightened their focus on capturing these transactions. Another category to come out ahead with back-to-school mindsets taking hold were Computers with a modest increase in July from the prior month, after several months of depressed spending.
These increases fly in the face of continued high inflation, perhaps indicating that much of this spend is occurring at discount retailers and furniture liquidators. As reported previously, Walmart and Target recently offloaded an oversupply of appliances, furniture and apparel to liquidators.
Discount Stores also saw a modest uptick in spend in July, as rising costs and fears of recession are driving more consumers to these less-expensive outlets.
#3: Home Improvement Off from Spring
The Home Improvement category has shown a gradual month-over-month increase over the last quarter. However, since June, spend in this category has started to decline. This is to be expected, as home improvement spending is highly seasonal, and consumers typically do most of their renovation projects in the winter and spring. These declines also coincide with the increase in furniture spend, as furnishing new spaces is typically the last step in a major renovation project.
“Home improvement has a seasonality to it,” said Patton. “As kids are getting ready to go back to school, their parents are reprioritizing their budgets from home improvement over to books, supplies and other necessities.”
Month-Over-Month Category-Level Spending (Comparing July 2022 to June 2022)
Please note that the category spending below reflects year-over-year (% Difference from 2021 vs. 2022 YoY August – July) in the first two columns, and month-over-month comparisons in the last two columns.
What Credit Unions Should Do Now
As rates rise, it’s a great time for credit unions to dust off their balance transfer campaigns. Members are starting to feel the effects of rising rates on their wallets, so reward cardholders and entice non-cardholders to open a card with a low-rate balance transfer offer. According to Nerd Wallet’s 2022 card program trends, 0% APR offers doubled from Q42020 to Q3 2021, so a competitive offer will be crucial for success. In addition to a compelling offer, members should be reminded of the credit union difference of competitive rates, low fees and exceptional service. A well-timed balance transfer campaign will help to grow a credit union’s portfolio balances and burnish their primary financial relationships.
As spending picks up going into the fall Back to School season, rewards become increasingly important. Make sure to offer a compelling loyalty rewards program to compete with the leading programs on the market and to keep cards top of wallet.
More information on the Co-op SmartGrowth Consulting Team can be found here.
About Co-op Solutions
Co-op Solutions is a credit union-owned financial technology platform built using an industry-leading ecosystem, and whose mission is to connect credit unions to the technology, strategic partnership and scale they need to best serve their members and grow now and into the future. Co-op Solutions partners with credit unions to unlock their potential so they can compete; does the hard work of innovation, creating a one-stop opportunity to help credit unions grow; and offers knowledge and expertise in a world where everything must be integrated. Founded in 1981, Co-op Solutions services 2,650 credit union clients, processes eight billion transactions annually, and manages a nationwide ATM network of more than 30,000 and a 5,700-location shared branch network. For more information, visit www.coop.org.