By Roy Urrico
Consumer debit spending growth in June 2024 remained positive, while credit spending continued to slow. Those are two of the findings in July 2024 edition of the Velera Payments Index, which also featured a “Deep Dive” into travel.
St. Petersburg, Fla.-based Velera – formerly PSCU/Co-op Solutions – which describes itself as the nation’s premier payments CUSO and an integrated financial technology solutions provider – designed the Velera Payments Index to help credit unions and other financial institutions make strategic, data-informed decisions on behalf of their members.
“Following a strong surge over the past few years, the era of revenge travel may have subsided, but travel demand remains stable. Recent trends indicate consumers are still finding room in their budgets to enjoy summer travel,” said Anthony Fletcher, vice president, payments and digital strategy, at the $8.9 billion Fort Worth, Texas-based American Airlines Credit Union. “We’ve experienced slightly better performance given the nature of our niche membership of air transportation professionals and their families, but still see the overall growth in credit activity moderating back to pre-pandemic levels. While lodging is experiencing reduced spending, airline transactions remain steady. In contrast, our data shows cruise lines continue to experience robust transaction growth, highlighting a shift in consumer travel preferences.”
Economic Temperature
“With summer in full swing, economic indicators and the Federal Reserve Chair hinted to a possible rate decrease in the fall, while the 12-month rate of inflation dropped to 3.0%, in line with where it was one year ago,” said the Velera Payments Index.
Meanwhile the Index confirmed that Consumer Confidence Index dropped in June to 100.4 from a slightly downward revised May result of 101.3, remaining within the same narrow window for the past 24 months. “In June, consumers appeared to be less concerned about a potential recession, although their family financial situation was less positive. The University of Michigan Index of Consumer Sentiment decreased less than a point to 68.2 for June, with the slight drop attributed to expectations that inflation will continue to moderate as high prices and lower incomes impact personal finances.”
In June, jobs grew slightly more than expected with 206,000 jobs created, lower than the downwardly revised increase of 218,000 jobs in the May Velera Payments Index. Job gains occurred in government, healthcare, social assistance and construction. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate for June increased to 4.1%, or 6.8 million people.
In the Labor Department’s July 11, 2024 update, the Consumer Price Index (CPI) declined 0.1% in June, bringing the cumulative 12-month rate of inflation to 3.0% – a “sharper-than-expected” decline for June. Gasoline was down 3.8% in June after dropping 3.6% in May. Other categories decreasing for June included airline fares, used cars and trucks and communications. Increases occurred in the shelter, motor vehicle insurance, household furnishings, medical care and personal care categories. Core CPI, which excludes the food and energy sectors, decreased to 3.3% for the 12-month rate through June. “This was the smallest 12-month increase in Core CPI since April 2021,” added the Velera Payment Index.
“While the next Federal Open Market Committee (FOMC) meetings are not until July 31, the Federal Reserve Chair addressed Congress on July 10, hinting at a coming interest rate cut driven by slower job creation and notably eased inflation after the worst inflation spike in the past 40 years,” maintained the Velera Payment Index. The report added, while inflation remains higher than the Fed’s 2.0% target, Chair Jerome Powell told Congress cutting interest rates “too late or too little could unduly weaken economic activity and employment.”
Other Key Takeaways for June
Growth rates improved for debit and softened for credit year over year. Debit purchases were up 4.3%, with almost a third of the debit growth coming from money services, while credit purchases were down 1.5%, with over half of the decrease in the goods sector. Debit transactions were up 3.3% and credit transactions were up 1.1% year-over-year.
The Consumer Price Index for All Urban Consumers (CPI-U) dropped more than expected in June, with the 12-month rate of inflation now at 3.0%. Gasoline was the largest contributor to the decline, followed by airline fares and used cars and trucks. Increasing in June were shelter, motor vehicle insurance and household furnishings. Excluding the volatile energy and food sectors, the 12-month core CPI index was 3.3%, the smallest increase since April 2021.
The credit card delinquency rate followed its seasonal pattern – increasing 10 basis points in June compared to May, and finishing at 2.44%. Year-over-year, the June delinquency rate was up 50 basis points.
Growth in total credit card balances accelerated in June, with a year-over-year increase of 5.5%. For May, credit card balances grew 5.1% year-over-year. This marked the first month-over-month increase for this measure in the past 14 months.
Deep Dive: Travel
For this travel “Deep Dive,” the Velera Payments Index focused mainly on the growth year to date through June 2024. It found credit purchases in the travel sector down 3.5% and debit purchases down 1.0%. The largest contributors to the drop in both credit and debit travel purchases were lodging (hotel/motel) and airlines. Overall, credit travel transactions were down 2.3% for the first half of 2024 compared to 2023, while debit travel transactions were up slightly at 0.8% compared to 2023.
The Velera Payment Index pointed out that “while growth in most travel sub-categories was down compared to 2023, one similarity to last year’s ‘Deep Dive’ is continued growth for cruise lines. Year to date through June, credit purchases with cruise lines were up 5.2% and debit purchases were up 6.0%. While purchase growth was up for cruise lines, transaction growth remained somewhat flat.” Year-to-date through June, credit cruise line transactions were down 0.1% and debit cruise line transactions were up 0.2%.
Airlines, which represent the second largest sub-category within travel purchases, have experienced a year-to-date drop in growth in the Velera data. Through June, airline credit purchases were down 4.1% and airline debit purchases were down 1.8%. Transactions were also down year to date: credit Airline transactions were down 2.2% and debit airline transactions were down 0.3% compared to 2023.
Additionally, Velera examined the performance of U.S.-based airlines separately from non-U.S. based airlines. The top three airlines based on purchase dollars for U.S. based carriers were American Airlines, Delta and Southwest. For non-U.S.-based carriers, they were British Airways, Air Canada and Air France.
Within this airline breakout, the Velera Payments Index noted a new trend has emerged in recent months. “Through the post pandemic return-to-travel period, growth in purchases for non-U.S.-based airlines had been consistently higher than growth in purchases for U.S.-based carriers. Beginning in May 2024, credit card purchase growth for non-U.S.-based carriers fell below the growth for U.S.-based carriers. The trend continued in June, with credit purchases for U.S.-based carriers down 6.8%, while non-U.S.-based airlines were down 9.1%.”
What Should Credit Unions Do Now?
The Velera Payments Index made three recommendations for credit unions:
1. Understand changes in your members’ purchase behaviors. Since travel represents approximately 10% of overall credit spend, reductions in travel may lead to reductions in overall spend. Consider focusing on growth in other categories, such as dining, which is showing the strongest growth for credit.
2. Many members accumulated card rewards during the strong spend periods following the pandemic. With household finances tightening, using these rewards for travel might prove beneficial. Where available, communicate the available travel options specifically to those who are holding point balances.
3. Consider promoting debit for travel given its performance. Whether being frugal for purchases or lacking credit availability, debit has become a viable alternative in the travel space. Also remind members of the safety and security of using a card for these purchases.