Despite facing persistent inflation and elevated interest rates, Americans have continued to spend generously over the past two years. However, emerging data from Wells Fargo reveals a potential shift in consumer behavior, with credit card volume showing signs of deceleration.
Credit Card Spending Moderates
During the three-month period from July to September, credit card volume, encompassing both credit and debit spending, reached approximately $2.6 trillion. While this reflects a 5.3% increase compared to the same period last year, it marks a significant slowdown from 2022 when card volume surged by 13%. The drop is even more pronounced when compared to the third quarter of 2021, where the growth rate was an impressive 25%.
Wells Fargo notes in its report, “After a strong 2021 and 2022, card volume growth has slowed during 2021, implying a moderation in consumer strength.”
Factors Influencing Consumer Sentiment
Despite a robust job market and substantial wage increases, consumers may be approaching spending more cautiously in the coming months. The impending resumption of student loan payments and the persistence of high-interest rates are contributing factors. Additionally, more Americans are turning to credit cards to cover basic necessities, resulting in credit card debt surpassing $1 trillion earlier this year and a surge in delinquencies, reaching an 11-year high in August.
Lingering Inflation Pressures
While inflation has somewhat cooled in recent months, it remains elevated at 3.7% compared to the same period the previous year, according to the latest Labor Department data. High inflation continues to exert financial strain on U.S. households, particularly impacting low-income Americans who bear a disproportionate burden due to fluctuations in prices for essentials like food, gasoline, and rent.
Corporate Caution Amidst Economic Indicators
Major retailers, including Walmart, are expressing caution about consumer spending in the latter half of the year. Walmart, a key indicator for the retail industry and the broader economy, cites potential risks to profit margins. Factors such as the resumption of student loan payments, rising gas prices, and persistently high-interest rates are key considerations.
Walmart’s warning is echoed by other brands and retailers, including American Eagle Outfitters, Carter’s, Crocs, Foot Locker, Canada Goose, Gap, Nordstrom, Nike, Steve Madden, Under Armour, and Victoria’s Secret, as highlighted in a recent UBS note. The restart of student loan payments is anticipated to impact spending across these diverse sectors.
In summary, while the U.S. consumer has demonstrated resilience in the face of economic challenges, there are growing signals of a potential shift in behavior. The moderation in credit card spending, coupled with concerns expressed by major corporations, underscores the intricate balance the economy must navigate in the coming months.
Download our app MadbuMax on the Apple App Store for the latest news and financial tools. Interested in getting your finances in order do not forget to check Dr. Paul Etienne’s best-seller book on personal finance. To access more resources, tools, and services please click here. Also, do not forget to follow Dr. Etienne on IG or Twitter.
