RANCHO CUCAMONGA, Calif. –Despite economic headwinds and mounting recessionary concerns, consumers are continuing to spend, Co-op Solutions reported.
Co-op’s May credit union card portfolio data showed stronger month-over-month results across most categories, while cardholders continued their year-long shift from debit to credit in an effort to preserve cash in light of increasing economic uncertainty.
The Trends
According to Co-op, it’s SmartGrowth consultants are watching the following trends:
#1: Home Improvement Continues Strong Growth Trend
“Home improvement was up strongly in May in both credit and debit, showing double-digit increases in both count and amount over the prior month, as homeowners continued to invest in their current residences amidst the dual challenges of a hot real estate market and rising mortgage interest rates,” Co-op Solutions stated.
Looking at May 2022 year over year data, the home improvement category grew strongly in credit, with a 39% increase in count and 24% in amount versus May 2021, according to the company.
In contrast, year over year debit spend fell in the category by 8% in count, while rising in amount.
“Homeowners are doing smaller home improvement and renovation projects this year versus last year,” said John Patton, Co-op senior payments advisor. “And given the economic uncertainty, they’re largely using credit to finance these projects, while preserving their savings to fund more significant renovations.”
#2: Long-term Shift to Credit Continues
With economic uncertainty and rising prices ruling the day, Co-op said consumers are conserving their cash, driving a steady shift over time from debit to credit. Diverse merchant categories like gas, grocery and computers all showed triple-digit increases in credit year over year, while spending fell in debit for the same categories, the analysis added.
“An interesting trend is emerging between the payment types, it appears debit card users are pulling back on spend, possibly moving to credit for smaller, everyday purchases,” said Beth Phillips, director at Co-op Solutions. “While, reserving their cash available for larger purchases, like home improvement, or to keep it on hand due to economic conditions.”
Added Patton, “People tend to save up and use cash for special events like major sporting events, season tickets and concerts. This means that we’re seeing a lot of this spend on the debit side, in the month over month data, as opposed to credit.”
#3: Credit Balances Rise for Fifth Consecutive Month
After spending most of 2021 underwater, Co-op Solutions said its data show credit balances have increased steadily since the beginning of 2022 on a year over year basis. May 2022 showed the strongest growth trend yet, with 8.14% higher balances as compared with May 2021, a lift of nearly 1% over April 2022.
“As members use their credit cards more frequently, their balances will naturally grow,” said Patton. “They’re more likely to carry higher average balances and are less likely to pay off in full each month.”
What Credit Unions Should Do Now
As balances grow, credit unions should take this opportunity to analyze their members’ credit line usage patterns to best meet their needs, Co-op is recommending.
“Research shows that when a card holder approaches a 30% utilization rate on their line, they will begin to pull back on using that specific credit card,” Phillips said. “Credit unions should engage with their member before that happens, by instituting a regular automatic line adjustment campaign.”
Month-Over-Month Category-Level Spending (Comparing May 2022 to April 2022)
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