The Velera Payments Index: August 2024

Today, Velera – formerly PSCU/Co-op Solutions – published the August 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.

In July, growth in consumer spending slowed to some of the weakest rates of 2024. Multiple economic indicators also reveal slowing activity and point toward interest rate cuts by the next Fed meeting in September. In our August 2024 edition of the Velera Payments Index, we present a Deep Dive on the spending activity surrounding the Amazon Prime Day sale, heralded by Amazon as their biggest shopping event ever since the sale started in 2015.

For the past three months, the University of Michigan Index of Consumer Sentiment has remained virtually unchanged, with July down 1.8 points. Inflationary impacts, namely higher prices with lower-income participants, kept the final results for July inline at 66.4. The Consumer Confidence Index was also virtually unchanged for July at 100.3 when compared to the initial June result of 100.4, while June results were downwardly revised to 97.8. With relatively positive sentiment on the job market, high interest rates, elevated prices and election uncertainty continue to be top consumer concerns in the near-term outlook.

In July, jobs grew much less than expected, with 114,000 jobs created – below the average gain of 215,000 over the past 12 months. Job gains occurred in government, healthcare, construction and transportation & warehousing, while the information sector lost jobs in July. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate for July increased by 0.2 percentage point to 4.3%, or 7.2 million people. With the increase in the July unemployment rate, the Sahm Rule, a measurement used to determine if a recession has started, shows this may be the case as the three-month moving average of the U.S. unemployment rate is at least half a percentage point higher than the 12-month low.

In the Labor Department’s Aug. 14 update, the Consumer Price Index (CPI) increased 0.2% in July, bringing the cumulative 12-month rate of inflation down to 2.9% – the smallest 12-month increase since March 2021. Decreases were seen in used cars and trucks, medical care, airline fares and apparel. Shelter, which rose 0.4 percent in July, accounted for 90% of the monthly increase. The energy index, which includes gasoline, was unchanged after two months of declines. Core CPI, which excludes the Food and Energy sectors, decreased to 3.2% for the 12-month Core CPI rate through July.

From the Fed meetings ending July 31, Chair Jerome Powell held rates steady and indicated that more progress was needed before rate reductions would happen. Since that time, multiple economic indicators are reporting slowing economic results. An increasing number of analysts are predicting a half-percentage-point reduction could come next month – or even sooner. The Fed’s policy rate is currently 5.3%, with the next Federal Open Market Committee (FOMC) meeting scheduled for Sept. 17-18.

“Despite a slowdown in overall spending growth, consumers in our Payments Index data set maintained steady year-over-year purchase volumes during a successful Amazon Prime Day sale, which saw a 12% overall increase year over year, driven by discounts and continued adoption of BNPL. Prime Day highlights Amazon's integral role in consumers' lives, and the growth in July's performance indicates our credit unions have effectively positioned their cards in members' wallets,” said Ryan Myers, senior vice president, Consulting at Velera. “As we approach the holiday shopping season and Amazon’s next big sale – Prime Big Deal Days in October – credit unions should stay vigilant with competitive card products and marketing to minimize the impact of growing BNPL purchases.”

Key takeaways for July include:

• For July, year-over-year growth rates continued to soften for debit and credit, with credit virtually flat year over year and debit up marginally.   While debit purchases were up 3.2%, half of the debit growth came from Money Services (CashApp, Venmo, Zelle, etc.). Credit purchases were up 0.2%, with the Service sector keeping growth in positive territory. Debit transactions were up 1.6% and credit transactions were up 0.8% year over year.

• The Consumer Price Index (CPI-U) declined in July, bringing the 12-month rate of inflation to 2.9% – the smallest 12-month increase since March 2021. Reductions were seen in used cars and trucks, medical care, airline fares and apparel. Shelter, which rose 0.4 percent in July, accounted for 90% of the monthly increase. The energy index, which includes gasoline, was unchanged after two months of declines.

• Despite slowing consumer spending, Payments Index data shows positive growth in credit and debit purchases for the Amazon Prime Day event on July 16-17. Target and Walmart both held their competing events during the full week prior to Amazon’s event, with each retailer also posting positive growth in purchases.

• The 2024 credit card delinquency rate remains elevated compared to the past few years, as well as when compared to the pre-pandemic patterns of 2019. While the seasonal pattern of increasing as the end of the year approaches is apparent, the July delinquency rate was up 45 basis points compared to July 2023.

• Growth in year-over-year total credit card balances was up 4.9% for July. While total balances continue to increase, the rate of growth is slowing with July being the low point for 2024 so far.

The full report is available for download here or can be shared as a PDF upon request.