Today, PSCU – the nation’s premier payments CUSO and an integrated financial technology solutions provider – published the June edition of the PSCU 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.

 

As inflation has reached an inflection point, higher prices for many goods and services are still weighing on consumer spending decisions. This month’s PSCU Payments Index finds the continued trend of slower year-over-year growth for both credit and debit. In May, year-over-year growth in credit card purchases was negative for the first time since August 2020. While still positive, growth in debit card purchases exhibited a similar softening trend. This month’s Deep Dive highlights our Money Services sector, which has a more notable share of overall debit activity as compared to credit and includes peer-to-peer (P2P) activity of merchants and payment facilitators such as Cash App, Venmo and PayPal.

 

In the Labor Department’s June 13 update, the Consumer Price Index (CPI) increased by 0.1% in May. The annual rate of inflation dropped from 4.9% through April to 4.0% through May. While this is the eleventh consecutive monthly drop in the annual rate from the peak of 9.1% in June 2022, it remains higher than the Fed’s target annual inflation rate of 2.0%. The largest contributor to inflation continues to be shelter, followed by used cars and trucks. The energy index declined 3.6 percent in May, which includes gasoline. Following their June meeting, the Federal Reserve did not increase interest rates, keeping the current Fed Funds rate at 5.25% - while signaling the possibility of two additional rate hikes in 2023. The Fed’s next scheduled meeting is set for July 25-26.

 

The Consumer Confidence Index fell in May to 102.3 (1985=100), down from a revised 103.7 in April, while the job market remains resilient and the unemployment rate ticks up. The Bureau of Labor Statistics (BLS) reported in its May 2023 jobs report that 339,000 jobs were added for the month, with increased jobs in professional and business services, government, health care, construction, transportation and warehousing and social assistance. This is much stronger than the 190,000 new jobs that were expected by economists. The overall unemployment rate for May increased to 3.7%, or 6.1 million people.

 

“As inflation continues to cool, it’s trending in the right direction. Yet consumer spending continues to slow, indicating consumers are likely being more financially cautious,” said Denise Stevens, SVP, chief product and digital officer at PSCU. “In May, credit card purchases experienced negative year-over-year growth for the first time since August 2020. While debit card purchases experienced positive growth, the softening trend is evident. In this month’s Deep Dive into the Money Services sector, we see peer-to-peer (P2P) payments driving the largest growth, with the volume of debit activity notably greater than credit.”

 

A sampling of key takeaways from the June report includes:

For the first time since the summer of the COVID-19 pandemic (August 2020), year-over-year growth in credit purchases was negative, finishing at -0.8% for May. Growth in debit purchases was positive at 1.6% for May and was half the reported growth from April 2023. Growth in transactions in May continued to be stronger than growth in purchases.For credit purchases, the largest contributor to growth was the Services sector (1.36 percentage points of growth) while offset by reductions in Gasoline (1.15 percentage points) and the Goods sector (1.03 percentage points). For debit purchases, two sectors generated the highest growth, with Services contributing 1.1 percentage points and Money Services contributing 0.9 percentage points. Debit purchases were offset by a reduction of 1.3 percentage points in Gasoline. Credit transactions were up just 0.4% and debit transactions were up 2.1%.The Consumer Price Index (CPI-U) decreased on an annual basis from 4.9% to 4.0% in May. For the fourth consecutive month, shelter accounted for the majority of the all-items inflationary increase. Following their June meeting, the Federal Reserve did not increase interest rates, keeping the current Fed Funds rate at 5.25% - while signaling the possibility of two additional rate hikes in 2023.Money Services represented 10.7% of overall debit purchases in May and includes peer-to-peer (P2P) payments with Cash App, Venmo and PayPal. There is notable growth in this sector when considering that for the pre-pandemic May 2019 timeframe, Money Services represented 3.8% of overall debit purchases. P2P payments are used at a greater rate by the youngest age demographic (Gen Z), representing 15.4% of their overall debit purchases.Growth in non-discretionary spending was negative on credit cards at -2% for May and up 1% for debit cards year over year. Discretionary spending again grew at a greater rate than non-discretionary spending, with credit up 2% and debit up 9%. Transaction growth on credit cards was up 1% for discretionary transactions and flat at 0% for non-discretionary transactions. Transaction growth on debit cards was up 9% for discretionary and up 1% for non-discretionary transactions.The credit card delinquency rate for May finished at 1.86%, above the May 2019 pre-pandemic level by 0.16%. Total credit card balances were up 12.7% for May compared to a year ago, while the average credit card balance for active accounts was $2,962, up 8.7% (or $238) year over year.

The full report is available for download here