RANCHO CUCAMONGA, Calif. –Spending by members on their credit and debit cards was “muted” during January, according to the latest numbers released by Co-op Solutions and its SmartGrowth team.
In releasing its numbers, Co-op noted the mixed signals being sent by the economy, including
January’s surprisingly resilient jobs report and a slight decrease in the pace of inflation. But those factors also led the Fed to raise rates again earlier this month.
Meanwhile, as CUToday.info has been reporting, Co-op noted “another major area of focus for the industry continues to be credit risk, even as NCUA’s Q3 2022 data show loss rates were historically low at 1.93%.
Preparing for Economic Disruptions
“However, in light of the Fed’s continued interest rate hikes and escalating economic stressors, charge-off rates are once again rising from the historic lows of the past few years – with predicted loss rates on par with those seen before the pandemic,” Co-op said. “When combined with rising credit balances, stubborn inflation and higher interest rates, these rising loss rates are leading industry professionals to speculate that economic disruptions are ahead, although they are likely to be relatively mild as the economy resets from the widespread impacts of a worldwide pandemic.
“Overall, spending patterns remain robust, compared to the same time last year,” Co-op added.
Key Spending Trends
Co-op’s SmartGrowth team said it has been closely watching the following key spending trends this month:
Retail, Amazon Post-Holiday Volumes Up Over Prior Year
“Following strong holiday sales season numbers, retailers posted big declines in January, as is typical for this time of year,” the company said. “However, debit cardholders spent at much higher rates as compared with January 2022, increasing their Amazon transactions by over 50%. In comparison, credit cardholders increased their spend by 25% over the same period.”
The company noted that other retail merchants, including department stores, did not fare as well – posting moderate declines on purchase transactions.
Co-op added that its analysis shows Amazon transactions declined by 29.3% in credit and 27.5% in debit from December 2022 to January 2023. “These results, while expected after the holidays, come as Amazon warns of slower growth ahead in both its eCommerce and web services businesses, citing the challenging economic outlook,” it stated.
Travel Ticks Up
According to Co-op, travel purchases increased year-over-year by 16% on debit and 32% on credit. While some consumers prefer the travel protection of a credit card, the steady growth in both portfolios since January 2022 provides a continued positive outlook for the travel segment as we move into 2023, the analysis stated.
“Travel has been one of the strongest categories over the past couple of years, particularly on credit,” said Beth Phillips, director of strategic portfolio growth, Co-op Solutions. “Travel is up by 28% in transaction count since January 2021, and by 8% since January 2022. This trend indicates the travel industry is poised for continued strong growth.”
Economic Worries Spur Shift to Debit
Although Co-op noted the market has seen higher rates of credit spending and ballooning credit card balances as economic uncertainty grows, consumers have indicated they are focused on their own household budgets and may start shifting their spending behavior to debit.
Co-op reported its January 2023 data showed an increase in debit transactions of 3% over January 2022, a rate of growth only 2% lower than credit. This represents a significant jump from January 2021, when transaction volumes fell by 8% on debit and 7% on credit.
“According to The Conference Board’s Consumer Confidence Index, consumer confidence fell from 109.0 in December to 107.1 in January, with greater pessimism among lower-income and younger households,” the company noted. “Consumers are concerned about the direction of the economy over the next six months, as many have already exhausted much of their savings reserves since the pandemic.”
Co-op added that this economic uncertainty led to declines in January month-over-month credit transaction volume of -10.2%, while debit spending fell over the same period by a comparatively smaller -8.7%.
A Difference in Households
“Higher income households – including those professionals that receive a regular salary – are still faring better than lower-income, paycheck to paycheck households,” said John Patton, senior payments advisor, Co-op Solutions. “But the latest surge in job growth has skewed toward lower-wage jobs in the leisure, hospitality and healthcare sectors, indicating that the professional ranks may begin feeling the pain soon as consumer confidence continues to decline.”
Month-Over-Month Category-Level Spending (Comparing January 2023 to December 2022)
In the data below, Co-op explained that the category spending below reflects month-over-month comparisons (rather than year-over-year) – i.e., compares January 2023 with December 2022, rather than January 2023 to January 2022.
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