Today, PSCU published the February edition of the PSCU Payments Index, the goal of which is to provide information and insights to help financial institutions make informed, strategic decisions on the road ahead.

The intended economic outcomes from the Fed’s ongoing interest rate hikes appear to be making an impact. In January 2023, we find inflation slowing, though job creation remains strong, unemployment is at a 53-year low and consumer purchasing was positive for both credit and debit cards. In this month’s Deep Dive, we outline several refinements to the PSCU Payments Index and introduce new measures on discretionary and non-discretionary consumer spending.

In the Labor Department’s Feb. 14 update, the Consumer Price Index (CPI) declined by 0.1% for the month of January, bringing the 12-month rate of inflation to 6.4%. With the unemployment rate for January at 3.4% (the lowest jobless rate since May 1969), U.S. Treasury Secretary Janet Yellin sees the possibility of navigating away from a recession in 2023. The Federal Reserve’s next meeting occurs on Mar. 21-22 with another anticipated rate increase. On Feb. 7, Federal Reserve Chair Jerome Powellindicated that inflation could be cooling, but the central bank still needs to keep up its guard. While inflation appears to be receding, the robust creation of new jobs could lead the Fed to implement higher and/or subsequent rate hikes as the year progresses.

The Consumer Confidence Index decreased slightly in January to 107.1 (1985=100). The January result was higher than the lowest point of 2022 (July) when it was 95.7. The Expectations Index dropped to 77.8, which is notable as the Conference Board indicated that, when below 80, it would often signal a recession in the next year. The national average price per gallon of gasoline finished at $3.39 for the week ending Feb. 13, down 3% year over year. While daily gasoline prices have dropped every day since Jan. 28, Russia announced plans to cut daily oil production by 5%, which should have a ripple effect through the worldwide oil market.

In the February 2023 edition of the PSCU Payments Index, January’s growth rates finished better than December growth rates for credit and debit cards, with debit experiencing a bit stronger growth compared to prior months. In addition, we are beginning to see growth rates for transactions and purchases converge for both products as the rate of inflation slows.

“As we begin reporting 2023 payment performance and continue to evolve the PSCU Payments Index, we are excited to introduce several enhancements to bring greater clarity on trends in consumer sentiment and payment preferences,” said Mike Bell, Vice President, Insights at PSCU. “From the reorganization of merchant categories into more relevant groupings to the new reporting of payment trends in discretionary and non-discretionary buckets, we are committed to providing additional insights and value for our financial institutions. As an example, with the growth of P2P payments such as CashApp, Venmo, Zelle and PayPal, we hope that the new Money Services sector will provide a greater understanding of these payment options, which now account for 10% of all debit purchases.”

A sampling of key takeaways from the February report includes:

• Consumer spending growth on payment cards posted positive results for January, with debit card growth improving more than credit card growth when compared to December growth rates. For January, credit purchases were up 9% and debit purchases were up 7% year over year. Growth in transactions was also strong, with credit up 7% and debit up 6% year over year.

• The Consumer Price Index (CPI-U) decreased on an annual basis to 6.4% in January, down by 0.1 percentage points. Shelter accounted for nearly half of the all-items increase. While Chairman Powell has signaled for another subsequent rate increase at the Fed’s next meeting on Mar. 21-22, the degree will be based on the strength of upcoming key metrics.

• To provide greater context around the growth in consumer payments and consumer sentiment, this month we have categorized all merchant categories into discretionary and non-discretionary spending buckets. For January 2023, the mix of discretionary/non-discretionary spending for credit purchases was 22% discretionary and 78% non-discretionary. For debit purchases, the ratio was 11% discretionary and 89% non-discretionary. Consumers continue to show confidence in discretionary spending categories. For January, discretionary spending was up two percentage points for credit purchases and up 1% for debit purchases compared to January 2022.

• The credit card delinquency rate for January returned to 2019 pre-pandemic levels, finishing at 1.97%. Total credit card balances are up 13.7% for January compared to a year ago, while the January average credit card balance per active account was $2,912, up 6.4% (or $176) year over year.

 The full report is available for download here or can be shared as a PDF upon request. Additionally, feel free to subscribe here to receive updates when the PSCU Payments Index is published each month.