Today, PSCU published the October 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.

Actions continue to speak louder than words. Consumer payment behavior remained positive for both credit and debit in this month’s PSCU Payments Index despite a drop in consumer sentiment for September, while the 12-month rate of inflation remained unchanged. This month’s Deep Dive investigates discretionary spending trends in September results.

The Consumer Confidence Index declined again in September to 103.0 (1985=100), down from a revised 108.7 in August. Consumers remain concerned with rising prices in general, notably with groceries and gasoline, along with the current political situation and higher interest rates. In the September survey, the decline in confidence spanned all age groups and was notable with consumers of household incomes of $50,000 or more.

In the Labor Department’s Oct. 12 update, the Consumer Price Index (CPI) increased by 0.4% for September, with more than half of the increase attributable to shelter. The annual rate of inflation remained flat from the August update at 3.7% through September, while the energy index rose 1.5%. Excluding the volatile energy and food sectors, core CPI increased 0.3%. The next Federal Open Market Committee (FOMC) meeting is scheduled for Oct. 31 – Nov. 1.

In a much stronger than expected update, the Bureau of Labor Statistics (BLS)reported in its September 2023 jobs report that 336,000 jobs were added for the month, with increased jobs in leisure and hospitality, government, health care, professional, scientific, and technical services and social assistance. In the September report, the July and August jobs updates were both revised upwards by 79,000 and 40,000, respectively. These are the first upward job revisions after seven months of downward revisions. The overall unemployment rate was unchanged, remaining at 3.8%, or 6.4 million people, for September.

While President Biden signed a short-term measure to fund the government on Sept. 30, the new deadline for Congress to pass a longer-term bill is Nov. 17. Without a speaker of the House of Representatives currently in place, this date looms large as a government shutdown will have a substantive impact on the U.S. economy.

“Consumers adjust their spending patterns, shifting between discretionary and non-discretionary expenses based on changing priorities,” said James Wester, co-Head of Payments and director of Digital Assets and Cryptocurrency Practice at Javelin Strategy & Research. “The COVID-19 pandemic was a clear example – with a reduction in discretionary spending on items such as travel and entertainment, followed by an increased focus on essential non-discretionary purchases like replacing household items. As we look forward to 2024, it will be interesting to observe how tighter budgets may lead to a decline in discretionary spending.”

A sampling of key takeaways from the October report includes:

• Consumer purchases maintained their consistent and positive trends in September, although were down from the prior-month growth. Year-over-year growth in debit purchases was up 5.6%, while credit purchases were up 1.4%. Transaction growth finished with debit up 4.6% and credit up 2.6% for the month.

• For credit and debit purchases in September, the largest contributor to growth was again the Services sector. Goods and Utilities were the only categories offsetting credit purchase growth, contributing to a 0.6% and 0.1% reduction, respectively. For debit purchases, all sectors contributed positively to year-over-year growth.

• The Consumer Price Index (CPI-U) increased by 0.4% in September, while the 12-month rate of inflation remained unchanged at 3.7%. Shelter accounted for more than half of the monthly increase in September. Excluding the volatile Energy and Food sectors, the core CPI index increased 0.3% again in September.

• Growth in discretionary spending remained strong in September, with debit purchases up 6.2% and credit purchases up 1.8%. Two-thirds of the growth in debit discretionary purchases came from the Entertainment sector – Online Gambling and Events (concerts). For credit discretionary purchases, Events (concerts) and Cruises were top contributors.

• Growth in Buy Now, Pay Later (BNPL)-related payments were strong when looking at the top providers, including Affirm, Afterpay, Klarna, PayPal (Pay In 4) and Sezzle. For September 2023, BNPL debit payments were up 28.0%.

• The credit card delinquency rate increased in September and finished at 2.23%, above the September 2019 pre-pandemic level by 32 basis points. Total credit card balances were up 11.6% for September compared to a year ago. The average credit card balance for active accounts was $3,001 for September, up 7.3% (or $204) year over year.