RANCHO CUCAMONGA, Calif.– Consumer spending heated up in June, with credit continuing to show a comeback.
Merchant categories like dining, entertainment, lodging, camping, home improvement and gas all continuing to grow, while categories like digital goods, computers, and office equipment, furniture and supplies, that had been hot in the first half of 2020, showed decline, CO-OP Financial Services reported.
Debit use is still surprisingly high, showing that members’ checking accounts are still flush with cash from stimulus checks received earlier this year. But credit use is increasing in certain sectors, particularly for larger travel and tourism expenses like advance airfare and high-end hotel reservations. With strong job growth numbers and a tight labor market, consumer confidence will increase, and CO-OP Financial Services said it expects growth in credit usage to continue.
“Companies are paying out substantial hiring bonuses to incent employees to come back to work, and salaries for existing workers are getting bumped up,” said John Patton, CO-OP senior payments advisor. “As people have more free cash flow, they will spend more. We’re looking forward to a normalization of credit use to where we were in 2019, prior to the pandemic.”
Key trends to watch:
Back to School Means Back to Stores
Late July through August is traditionally the back-to-school shopping season. But consumer spending behaviors changed dramatically during the pandemic, as many retail businesses were closed to in-person shopping, and students adjusted to remote learning. In 2020, the back-to-school season ran basically flat against 2019, with a major shift toward ecommerce and away from brick-and-mortar department stores and other retail outlets.
CO-OP said it expect the traditional back-to-school shopping season to “return with a vengeance” this year as primary, secondary and collegiate students return to the classroom and students and parents are looking to buy new clothes, school supplies, computers and electronics.
Outstanding Balances Remain Underwater
“One of the most resilient trends since the beginning of the pandemic has been the consistent decline of outstanding credit balances. There are several reasons for this, including the multiple rounds of federal stimulus payments and robust Pandemic Unemployment Assistance (PUA) payments that helped laid-off workers keep up with their monthly bills during the pandemic,” CO-OP stated.
But this trend may be slowing down. Since a 19% contraction in November 2020, declines in year-over year outstanding balances have lessened steadily, reaching 9% in June 2021. The last round of stimulus payments hit consumers’ accounts months ago, and the PUA program is scheduled to end on July 31.
“Consumers paid down their outstanding balances with stimulus funds,” Patton says. “Now, the question is whether people are managing their budgets better and – coupled with higher earnings – will keep outstanding balances compressed. We anticipate it will take several years to return to pre-pandemic outstanding balance levels.”
Digital Spend Has Flattened Out…But …
Digital goods spending on credit has dropped roughly 20% between December and June. The decline in Amazon credit spend has been even more precipitous – around 41% over the same period.
Month-Over-Month Category-Level Spending (Comparing June 2021 to May 2021)
Amazon/Bookstores
Transaction Volume (#):
- Credit: Unchanged 0%. Debit: Up 4%
Transaction Amount ($):
- Credit: Up 3%. Debit: Up 7%
Interchange ($):
- Credit: Up 1%. Debit: Up 4%
Digital Goods
Transaction Volume (#):
- Credit: Down 9%. Debit: Down 2%
Transaction Amount ($):
- Credit: Down 10%. Debit: Down 3%
Interchange ($):
- Credit: Down 9%. Debit: Down 1%
Dining and Entertainment
Transaction Volume (#):
- Credit: Down 6%. Debit: Down 3%
Transaction Amount ($):
- Credit: Down 4%. Debit: Down 2%
Interchange ($):
- Credit: Down 4%. Debit: Down 3%
Education
Transaction Volume (#):
- Credit: Down 21%. Debit: Down 18%
Transaction Amount ($):
- Credit: Down 18%. Debit: Down 11%
Interchange ($):
- Credit: Down 16%. Debit: Down 14%
Gas
Transaction Volume (#):
- Credit: Down 4%. Debit: Unchanged 0%
Transaction Amount ($):
- Credit: Down 3%. Debit: Up 1%
Interchange ($):
- Credit: Down 4%. Debit: Unchanged 0%
Grocery
Transaction Volume (#):
- Credit: Down 8%. Debit: Down 4%
Transaction Amount ($):
- Credit: Down 9%. Debit: Down 7%
Interchange ($):
- Credit: Down 8%. Debit: Down 5%
Lodging
Transaction Volume (#):
- Credit: Up 13%. Debit: Up 8%
Transaction Amount ($):
- Credit: Up 16%. Debit: Up 11%
Interchange ($):
- Credit: Up 15%. Debit: Up 11%
Medical
Transaction Volume (#):
- Credit: Down 5%. Debit: Down 2%
Transaction Amount ($):
- Credit: Down 6%. Debit: Down 4%
Interchange ($):
- Credit: Down 6%. Debit: Down 4%
Retail
Transaction Volume (#):
- Credit: Down 6%. Debit: Down 4%
Transaction Amount ($):
- Credit: Down 9%. Debit: Down 7%
Interchange ($):
- Credit: Down 8%. Debit: Down 7%
Travel
Transaction Volume (#):
- Credit: Up 6%. Debit: Up 5%
Transaction Amount ($):
- Credit: Up 12%. Debit: Up 5%
Interchange ($):
Credit: Up 12%. Debit: Up 5%
Computers
Transaction Volume (#):
- Credit: Down 12%. Debit: Unchanged 0%
Transaction Amount ($):
- Credit: Down 5%. Debit: Up 2%
Interchange ($):
Credit: Down 5%. Debit: Down 1%
Office
Transaction Volume (#):
- Credit: Down 11%. Debit: Down 6%
Transaction Amount ($):
- Credit: Down 2%. Debit: Down 4%
Interchange ($):
Credit: Down 2%. Debit: Down 3%
Campers & Camping
Transaction Volume (#):
- Credit: Down 5%. Debit: Down 4%
Transaction Amount ($):
- Credit: Down 14%. Debit: Down 17%
Interchange ($):
- Credit: Down 18%. Debit: Down 15%
Home Improvement
Transaction Volume (#):
- Credit: Down 17%. Debit: Down 14%
Transaction Amount ($):
- Credit: Down 13%. Debit: Down 13.
Interchange ($):
- Credit: Down 12%. Debit: Down 13%
More information on the CO-OP SmartGrowth Consulting Team can be found here.