The Velera Payments Index: July 2024

Velera - formerly PSCU/Co-op Solutions, the nation's premier payments CUSO and an integrated financial technology solutions provider - has published the July edition of the Velera Payments Index, the goal of which is to provide information and insights to help financial institutions navigate the evolving financial landscape to make informed, strategic decisions for their organizations and members.

With summer in full swing, consumer debit spending growth in June 2024 remained positive, while credit spending continued to slow. 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. In our July 2024 edition of the Velera Payments Index, we revisit a Deep Dive into Travel, a discretionary spending activity that boomed in the post-pandemic era that now shows signs of moderation.

The 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 May. 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 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 & 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 Core CPI rate through June. This was the smallest 12-month increase in Core CPI since April 2021.

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. 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." The test will be if rates can be cut in the fall as inflation continues to recede.

"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 & Digital Strategy, American Airlines Credit Union. "At 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."

Key takeaways for June include:

• For June - much like the prior month - 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 (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.
• Year-to-date growth in the Travel sector (this month's Deep Dive) was down, with credit purchases down 1.0% and debit purchases down 3.5%. Most categories within the Travel sector were down, with the exception of Cruise Lines. YTD through June, credit purchases were up 5.2% and debit purchases were up 6.0% compared to 2023.
• 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% YoY. This marked the first month-over-month increase for this measure in the past 14 months.

The full report is available for download here