October spending trends: Economy cools as rate hikes finally take hold
Co-op Solutions payments trends report (spending data from October 1-31)
RANCHO CUCAMONGA, CA (November 16, 2023) —
It seems the Fed’s aggressive campaign to raise borrowing rates is finally having its desired effect on the economy, with job gains slowing markedly in October and inflation continuing to ease. Within Co-op’s credit union clients’ payment portfolios, credit spending grew month over month, while debit spending remained mostly flat.
The Cleveland Fed predicts the Consumer Price Index (CPI) will rise by only 0.07% in October when government data is released on November 14. Core CPI, which excludes volatile inputs such as fuel and grocery prices, is expected to rise by 0.34%.
U.S. payrolls grew by only 150,000 in October, below expectations and nearly 50% below September’s hiring figures. The unemployment rate rose slightly to 3.9%, remaining near historic lows.
With the economy showing signs of a “soft landing,” the Fed refrained from raising its benchmark interest rate for the second month in a row, but most Fed watchers expect the central bank to keep borrowing rates at inflated levels for the foreseeable future.
Despite the progress made on the economic front, The Conference Board’s Consumer Confidence Index declined for the third straight month in October to 102.6. According to the Conference Board, “consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular.” Concerns with political unrest and the wars in the Middle East and Ukraine were also top of mind for U.S. households.
Overall, Co-op credit union portfolio data shows that October transaction volume rose by 4.3% in credit and 1.2% in debit on a rolling 12-month basis.
Co-op’s SmartGrowth team members are closely watching the following key spending trends this month:
- Amazon Gets October Prime Day Boost:The Amazon/Bookstores merchant category has been one of the strongest performers over the past year among Co-op’s credit union payment portfolios, posting gains in October of 22.8% in credit and 47.4% in debit on a year over year rolling month basis.
Amazon recently announced its third quarter revenues grew by 13%, beating expectations. Contributing to this growth has been strong online retail sales, buoyed by the July Prime Days. In October, the eCommerce giant held a second event called Prime Big Deal Days, which executives claimed outperformed last year’s early holiday sale. The company had announced plans to hire 250,000 additional staff to support increased holiday season volume.
- Discount Spending Signals Financial Stress:Continuing a recent trend,categories including Discount Stores, Secondhand Stores, Government Lottery Tickets, Government/Gambling, Cash Advances, CU Services and Debt Collection all showed strong month over month growth in October.
Co-op’s SmartGrowth team members note that such spending is a sign that American households are facing financial headwinds, as they confront stubbornly high prices for many staple goods, a rising debt burden and high costs of borrowing.
In fact, the Federal Reserve Bank of New York reports that U.S. consumer credit card debt topped $1 trillion in the third quarter. In addition, delinquencies are growing, especially among millennials and those holding auto and student loans.
“Over the past few months, we’ve observed consumers beginning to shift their spending away from luxury goods,” said Ryan Prentice, Director, SmarthGrowth Consulting Services at Co-op. “They are trying to gain back control over ballooning household debt by shopping at discount retailers and thrift stores as common-sense options.”
- Travel, Leisure Prove Recession-Resistant:Despite this belt-tightening, some non-essential spending categories appear to be recession-resistant.
Overall, the Dining & Entertainment merchant category was up 5.5% in credit for October, and 3.1% in debit. Double-digit gains in credit transaction volume were seen in the Amusement Parks, Arcades, Billiards and Bowling, Movie Theaters and Theater categories, while Tourist Attractions jumped nearly 50% over September.
Transaction volume in the Travel category was up 7.3% in credit and 3.8% in debit month over month in October. Significant volume gains were seen in the Auto Rental, Bus Lines, Lodging and Taxi/Limo categories.
“If there’s one trend we’ve observed throughout this post-pandemic period of uncertainty, it’s the resilience of the American consumer,” says John Patton, Co-op Senior Payments Advisor. “Unless economic indicators take a sharp turn south, we expect households to keep spending.”
- Strong Start to the Holiday Season:So, what do these divergent signals from consumers mean for the 2023 holiday shopping season? Retailers are expressing cautious optimism, with the National Retail Federation (NRF) predicting that holiday spending in November and December will rise by 3 to 4% over 2022, reaching“record levels” of between $957 billion and $966.6 billion for the season.
Co-op’s proprietary analysis of its credit union credit and debit portfolios supports this sentiment. Co-op forecasts that month over month transaction volume within the Retail merchant classification will rise by 4.0% in November, before jumping by 23.6% in December. (This analysis is subject to a forecasting error of less than or equal to 5%.)
The NRF also predicts that online and non-store sales will rise between 7% and 9% over the holiday shopping period, and retailers will hire between 345,000 and 450,000 seasonal workers, on par with last year’s 391,000 temporary hires.
Year-Over-Year Category Level Spending (Rolling Year Average, and Comparing October 2022 to October 2023)
| |
|
Credit #Transactions |
|
Debit #Transactions |
|
| Category |
|
(Nov’21 – Oct’22) vs (Nov’22 – Oct’23) |
|
Oct’22 vs Oct’23 |
|
(Nov’21 – Oct’22) vs (Nov’22 – Oct’23) |
|
Oct’22 vs Oct’23 |
|
| Agricultural |
|
-3.6% |
|
-3.3% |
|
2.5% |
|
-8.7% |
|
| Amazon/Bookstores |
|
22.8% |
|
5.8% |
|
47.4% |
|
9.5% |
|
| Auto |
|
1.5% |
|
1.1% |
|
-1.4% |
|
-2.5% |
|
| Campers & Camping |
|
-9.0% |
|
-13.1% |
|
-12.8% |
|
-19.3% |
|
| Computers |
|
-12.8% |
|
12.6% |
|
-14.9% |
|
-5.6% |
|
| Digital Goods |
|
17.7% |
|
27.3% |
|
13.3% |
|
23.3% |
|
| Dining & Entertainment |
|
5.0% |
|
5.3% |
|
2.3% |
|
1.2% |
|
| Education |
|
10.1% |
|
1.7% |
|
12.1% |
|
2.2% |
|
| Financial Services |
|
13.6% |
|
13.8% |
|
3.9% |
|
1.6% |
|
| Furniture |
|
-12.9% |
|
-12.6% |
|
-15.0% |
|
-20.0% |
|
| Gas |
|
0.7% |
|
2.4% |
|
-1.9% |
|
-1.8% |
|
| Grocery |
|
5.4% |
|
8.1% |
|
1.2% |
|
1.1% |
|
| Home Improvement |
|
-3.3% |
|
-0.6% |
|
-6.2% |
|
-5.7% |
|
| Medical |
|
1.3% |
|
3.1% |
|
-1.6% |
|
-3.6% |
|
| Office |
|
-4.2% |
|
3.3% |
|
-5.4% |
|
-4.7% |
|
| Organizations |
|
0.8% |
|
-0.4% |
|
-0.1% |
|
-2.3% |
|
| Other |
|
5.9% |
|
6.1% |
|
11.8% |
|
15.9% |
|
| Pet |
|
-0.2% |
|
2.2% |
|
-3.0% |
|
-3.3% |
|
| Professional Services |
|
2.4% |
|
3.3% |
|
2.3% |
|
4.1% |
|
| Retail |
|
0.5% |
|
4.3% |
|
-2.4% |
|
0.2% |
|
| Specialty Retail |
|
-4.2% |
|
-4.6% |
|
-7.2% |
|
-9.6% |
|
| Sport/Recreation |
|
1.5% |
|
2.2% |
|
0.5% |
|
-2.5% |
|
| Travel |
|
15.5% |
|
13.3% |
|
7.1% |
|
6.4% |
|
| Utilities |
|
4.1% |
|
5.6% |
|
0.6% |
|
2.1% |
|
| Grand Total |
|
4.3% |
|
5.9% |
|
1.2% |
|
1.1% |
|
What Credit Unions Should Do Now
With consumer and credit card debt growing and delinquencies on the rise, many members are feeling increased financial stress.
To support the financial wellness of vulnerable members, consider offering debt consolidation loans and low-rate balance transfer options. Some may also benefit from the ability to skip a payment for a few months, especially during the busy (and expensive) holiday shopping season.
To protect their institutions, credit unions should also consider implementing risk-based pricing on their credit card program and initiating regular quarterly reviews of their cardholders’ credit lines.
In addition, adaptive control systems (ACS) are among the best tools available to help credit unions manage delinquency and charge off risks in their portfolio. These tools use behavioral scoring to understand and predict member behavior and facilitate decisions right down to the individual account level. As a result, credit unions are able to anticipate which cardholder relationships are headed for trouble, and offer assistance to those members before they go to collection or write-off.
Lastly, with the holiday shopping season going strong, don’t forget to encourage your members to make your credit and debit cards their preferred payment methods. Offer digital card issuance to allow members to use their cards instantly, without interruption. And make sure you’re offering contactless payments through the industry’s leading digital wallets, such as Google Pay, Apple Pay, Samsung Pay and Garmin Pay.
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.
