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October spending trends: Mixed economic signals ahead of holiday shopping season

November 16, 2022 – Mixed economic signals are leaving consumers feeling uneasy ahead of the holiday shopping season.

Jobs grew by 261,000 in October. Although this represented solid growth, it was nevertheless the smallest monthly increase since December 2020. As a result, the unemployment rate rose slightly to 3.7%. In addition, these figures were released prior to the widespread tech sector layoffs that hit in early November, which are likely to push unemployment higher over the coming months. Meanwhile, consumer demand for goods and services has not yet abated, contributing to a continuing high inflation rate of 7.7% in October.

Fed Chair Jerome Powell continues to aggressively combat rising prices and strong consumer demand, and the Federal Reserve announced another massive 0.75% rate hike on November 2, its sixth rate increase of the year. The benchmark Fed Funds rate is now in a range of 3.75% to 4.00%, the highest seen since the Great Recession begin in 2008. Moreover, the FOMC is widely expected to make one last adjustment for the year in December. The Fed previously forecast rates to rise to a range of 4.5% to 4.75% next year, before easing, but Powell’s latest comments signal they may have to go even higher.

October spending trends showed strong monthly increases in both debit and credit in categories including Amazon/Bookstores, Entertainment and Giving/Political. Sports and Recreation, as well as Campers and Camping declined as temperatures began to fall.

Overall, credit spending was up 4.3% for the month, while debit showed a slight increase of 0.8%.

Here are some of the key spending trends being watched closely this month by Co-op’s SmartGrowth Team:

#1: Signs point to slower sales growth this holiday season

The National Retail Federation is expecting slower growth this holiday shopping season. The industry trade group recently predicted sales will rise between 6% and 8% to between $942.6 billion and $960.4 billion from Nov. 1 through Dec. 31.

Despite this year’s slower growth versus 2021, which saw spending rise by over 13% compared with the pandemic-burdened 2020 season, this year’s anticipated sales total would still represent a record. Although consumers are expected to purchase fewer gifts this year, the overall spend per shopper will likely remain on par with last year due to the rising costs of merchandise.

“Retailers are trying their hardest to extend the holiday season this year,” said John Patton, Co-op Senior Payments Advisor. “They kicked off very early sales to entice cautious shoppers onto the sales floor. Although these early events – like Amazon’s extra Prime Day in October – did not achieve the level of sales that retailers were hoping for, by the end of December most will likely see lifts over last year.”

#2: Travel spending remains resilient

While inflation is dampening consumers’ gift-buying intentions this year, it has not seemed to affect their appetite for travel. According to major travel and lodging firms like Royal Caribbean, Hyatt and Hilton, bookings are up, and people are willing to spend more on experiences now than during the height of the pandemic.

This is supported by Co-op’s credit union payment portfolio data. October credit spending in the Travel merchant category is up 3.1% in debit month over month. And year over year, the category is up by 45.1% in credit and 15.8% in debit.

Co-op’s proprietary spending forecasts show continued solid growth in credit for the Travel category right through the holidays.

“We expect travel spending continuing into November with positive month-over-month growth, before flattening out in December and January,” said Beth Phillips, Director, Co-op Solutions. “This points to a surprisingly resilient sector, thanks to a pandemic-weary public that has pivoted to seeking out experiences over purchasing home goods, furnishings, toys, autos and other tangible goods.”

#3: Credit card debt returns to pre-Covid levels

Many consumers may be shifting from high-end department stores and boutiques in favor of discount retailers, but those who continue to spend are increasingly dipping into their savings and borrowing on credit to do so.

According to the Wall Street Journal, overall credit card debt has for the first time returned to pre-pandemic highs, pushing total card balances to $916 billion in September.

At the same time, some observers are seeing slowing growth in credit card usage as a harbinger of consumers’ worries about impending recession in the new year.

“Balances have gone up on credit cards and there’s this perspective in the marketplace that suggests that consumers are trying to hold some cash back in reserve,” said Patton. “Unfortunately, inflation is still an issue and many consumers may find themselves in difficult straits these coming months, especially over the winter as the costs of heating fuel costs are expected to rise significantly.”

Month-Over-Month Category-Level Spending (Comparing October 2022 to September 2022)

Please note that the category spending below reflects month-over-month comparisons (rather than year-over-year) – i.e., compares October 2022 with September 2022, rather than October 2022 to October 2021.

  
CategoryDebitCredit
Amazon/Bookstores53.3%25.1%
Amazon/Bookstores54.4%25.5%
Books, Periodicals, and Newspapers -1.6%-2.0%
Campers & Camping-22.0%-18.6%
Campers & Camping-27.0%-23.7%
Computers-13.4%-11.4%
Digital Goods-1.0%1.9%
Dining & Entertainment1.6%4.9%
Entertainment3.9%14.9%
Fast food, Restaurants, Bars1.2%4.3%
Education-1.4%-3.8%
Gas-2.1%1.8%
Grocery0.7%4.5%
Grocery0.6%4.3%
Wholesale5.4%8.1%
Home Improvement-2.3%0.9%
Medical-0.2%1.9%
Office-0.9%0.7%
Other-0.2%3.4%
Auto Dealers/Services/Parts-2.2%3.8%
Cable, Satellite, and Other-1.4%2.2%
Furniture-2.4%-0.1%
Giving/Political42.7%42.9%
Government/postal services-3.9%-1.7%
Insurance-1.8%1.4%
Other21.1%19.4%
Pet0.0%2.6%
Professional Services0.1%2.4%
Real Estate2.2%2.9%
Self-care-2.2%2.1%
Subscription services-0.4%1.9%
Utilities1.4%5.3%
Retail1.7%6.1%
Department Stores2.6%6.6%
Discount Stores 2.0%6.1%
Retail1.5%5.9%
Specialty Retail7.2%9.7%
Florists, antiques, jewelers, cigars, stamps, etc.7.2%9.7%
Sport/Recreation-8.2%-6.5%
Golf courses-25.7%-26.4%
Sport/Recreation-5.4%-3.1%
Travel0.8%3.1%
Airline-0.3%1.7%
Auto Rental-2.7%1.5%
Lodging-2.0%2.0%
Other Travel (railroad, taxi, cruise lines, toll fees, etc.)1.2%3.5%
Grand Total0.8%4.3%

What Credit Unions Should Do Now

Holiday shopping season is here! Now is the time for credit unions to activate their “spend and get” campaigns to maintain top of wallet status. Focus on those key merchant categories where members are most likely to spend in November and December, including Department Stores, Discount Stores and Digital Goods.

Subscriptions continue to stay hot across many services, from weekly meal kits to streaming services and even digital plans offered by automobile manufacturers. For issuers, this amounts to recurring interchange revenue that is incredibly “sticky,” as consumers will typically “set it and forget it” once they add their card as the payment method for the service. Look to offer special incentives to members to encourage them to provision their credit union-issued credit and debit cards in their subscription apps.


More information on the Co-op SmartGrowth Consulting Team can be found here.


About Co-op Solutions

Co-op Solutions is the market-leading financial technology platform whose mission is to connect credit unions to the technology, strategic partnership and scale they need to best serve their members now and into the future. Co-op partners with credit unions to unlock their potential so they can compete; does the hard work of innovation, creating a one-stop opportunity to help credit unions grow; and offers knowledge and expertise in a world where everything must be integrated. For more information, visit coop.org.

Contact:
Bill Prichard, APR
Director, Public Relations
Co-op Solutions
(909) 532-9416
Bill.Prichard@coop.org

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Saving the Planet One Card at a Time

By: Neal Fitzgerald, Strategic Product Manager, Payment Experiences at PSCU

National Recycling Day falls annually on November 15, serving as a reminder about the importance of recycling — and protecting our planet.

Now more than ever, consumers are speaking out with their concern about the environment – with their voices, votes and wallets. Decisions consumers make every day – like recycling plastic, glass and cardboard at home, conserving electricity, turning off the water while we brush our teeth, driving an electric car or trying to eat less meat – may seem like small, individual decisions, yet they demonstrate the groundswell of support toward working for a cleaner environment.

Public demand for action is growing rapidly. According to an analysis by the World Wildlife Fund and The Economist Group, consumers are changing their behaviors and showing greater interest in sustainable goods. Internet searches for sustainable products are increasing by 71%. Social media reflects this trend as well, with the global volume of Twitter conversations about damage to the environment increasing 65%, even during the pandemic.

Consumers of all ages, but especially Millennials and Gen Z, place a high value on choosing organizations and companies that have values that align with their own personal beliefs. Sustainability ranks high on the list of those values.

Many corporations are responding to the calls to support the environment and sustainable products. Research conducted by NYU’s Stern Center for Sustainable Business shows that within the last several years, the number of products marketed as “sustainable” has grown 5.6 times faster than products that were not. As of 2019, 127 nations had enacted laws legislating restrictions on single-use or hard-to-recycle items, including plastics.

How is your financial institution participating in the movement to protect our planet? Do you have sustainability goals and values? One powerful way to connect with your cardholders and protect the planet is by offering sustainable cards, especially when bundled with other eco-friendly solutions and options.

Recycled materials make a positive environmental impact

Have you ever thought about the impact plastic payment cards have on the environment? Most payment cards are manufactured using PVC – polyvinyl chloride – which is a first-use plastic made by combining fossil fuel chemicals. While each card is only five ounces worth of plastic, there are six billion credit and debit cards produced each year. The environmental impact from six billion plastic cards creates a significant carbon footprint – equivalent to about 900,000 tons of carbon dioxide – each year.

One way for financial institutions to make a tangible environmental impact is to explore greener options for payment cards. Sustainable cards can be manufactured using upcycled post-industrial waste, such as plastic litter, bottles and containers from landfills. Ocean-bound plastic sustainable cards are typically made from plastics that would pollute natural ecosystems within 50 miles of an ocean coastline. Offering sustainable cards made from one or both of those recycled materials will help reduce the number of first-use plastic payment cards in the market.

Consumers support sustainable cards

Public sentiment for sustainable cards is high. CPI Card Group commissioned an independent research study in 2020 to evaluate consumer sentiment toward sustainable cards. Key findings from this study revealed that 73% of respondents felt it is important that their bank or credit union is environmentally conscious, 64% said reducing plastics use is a top priority, and 63% were “very concerned” about the environment and plastic waste. Respondents also showed strong interest in owning a payment card that is “made from recycled materials” rather than other popular card options like metal cards or cards with custom designs.

Benefits of offering sustainable cards

There are many benefits to offering cards made of sustainable materials, especially if that is part of a larger “green” initiative from your financial institution.

  • Reduce overall carbon footprint. Offering eco-friendly products helps reduce your impact on the environment and the very communities your financial institution serves.
  • Positively impact brand image. Showing your ethical side is something consumers can get behind. Once they see how you believe in your mission, they are likely to become more engaged with and loyal to your financial institution and offerings.
  • Social responsibility influences buying decisions. Consumers are doing more business with companies that reflect their core beliefs despite extra costs, because it’s worth it to them – many would pay a premium just to have a sustainable product.
  • Attractive to new cardholders. Offering payment cards made with recycled PVC or reclaimed ocean-bound plastic gives consumers a new reason to choose your financial institution. Even if being sustainable isn’t a personal priority, the idea of using an environmentally friendly card is attractive to many consumers.
  • Competitive advantage. In an increasingly competitive financial services market, eco-friendly cards can set you apart from competitors. They can provide an innovative edge to help your financial institution grow and thrive in the marketplace.

Sustainable payment cards have the unique ability to offer your financial institution a way to make your environmental values visible to your cardholders, while also enabling your cardholders to participate in an environmentally friendly initiative.

While there is typically an increase in cost per sustainable card, the benefits of going green more than make up for it. A way to offset this cost is by “bundling” sustainable plastics with other eco-friendly initiatives. For example, remind cardholders that they can sign up for electronic statements and not receive any physical mail. While bundling sustainable cards with electronic statements contributes to reduced use of paper material, your financial institution will also benefit from the reduced postage expense. Does your rewards program allow cardholders to use points to donate trees to be planted? Consider revealing the cost-savings of transitioning to paperless – which can help pay for the switch to sustainable cards or perhaps be donated to an eco-friendly cause in your community.

If you are interested in offering sustainable cards or taking other “green” steps, consider working with a fintech credit union service organization (CUSO) like PSCU or another partner to help. While it can feel overwhelming to reexamine your financial institution’s approach to sustainability, it is an important step to take in order to stay relevant to consumers and to protect the planet – our common home.

Neal Fitzgerald, Strategic Product Manager for Plastics, Credit Payment Experiences at PSCU.  Fitzgerald has over 25 years of retail card product management and co-brand reward cards experience in the financial services industry.

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PSCU Payments Index – November 2022 Edition

Today, PSCU – the nation’s premier payments credit union service organization (CUSO) – published the November 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.

With the holiday shopping season upon us, fears of a recession are top of mind as the U.S. economy continues to face high, albeit softening, inflation. In our November 2022 edition of the PSCU Payments Index, we present the first installment of our three-part Deep Dive on holiday spending as the season kicked off with the second Amazon Prime Day of the year in October.    

In October, consumer purchasing growth for debit remained in the mid-single digits, as it has for most of the year, while credit card growth rates continued to outpace debit cards. Yet credit card growth began to show signs of softening, with October posting the lowest growth rates of 2022. Holiday spending appears to be off to a slow start, with fewer purchases in clothing and sporting goods showing shifts in consumer spending.

In the Labor Department’s Nov. 10 update, the Consumer Price Index (CPI) was up 0.4% for the month of October, bringing the 12-month rate of inflation to 7.7%. Increases in energy and food were largely offset by decreases in used vehicles, medical care, apparel and airline fares. The Federal Reserve increased interest rates by 0.75% for the fourth straight month on Nov. 2, with Chair Jerome Powell signaling additional increases to come when the Fed next meets over Dec. 13-14. Meanwhile, the Bureau of Labor Statistics (BLS) reported in its October 2022 jobs report that 261,000 jobs were added for the month – fewer than September (315,000 jobs) and the revised August data (292,000) – as the unemployment rate increased to 3.7% in October.

Even Thanksgiving dinner is expected to be more expensive this year, with costs predicted to be at least 13.5% higher for U.S. consumers compared to 2021 prices. USDA data shows that wholesale prices for 8- to 16-pound turkeys are up 28% compared to October 2021, with a regional shortage of turkeys over 20 pounds driven by a summer outbreak of bird flu expected to drive prices even higher.

“In some good news, despite economic concerns, consumers are looking forward to the holidays; however, many have ‘tightened their belts.’ Accenture’s U.S. holiday shopping research reveals that just over one-third (35%) of all consumers said they will try to stick to a holiday budget, and 45% are shopping at different times this year in search of the lowest prices. The research also highlighted that almost two-thirds are planning to spend the same or less than last year – with a third of those planning to spend more indicating they are involuntarily doing so due to inflation. In response to this expectation, we are seeing an uptick in promotions and discounting from retailers as they work to earn their share of consumer spend. Holiday success for retailers will likely come from four key areas: enticing in-store experiences, meeting consumer demands for virtual goods and services, effectively processing returns in the face of ongoing supply chain and delivery partner challenges, and attracting and retaining additional workers for the busy holiday shopping season,” said Casey Merolla, Managing Director, Accenture.

A sampling of key takeaways from the November report includes:

  • Consumer spending on payment cards remained strong in October. Credit card results have slightly softened as the year progressed, while debit card growth remained lower than credit cards, which has been consistent throughout 2022. For October, credit purchases were up 10% and debit purchases were up 5% year over year. Year to date through October, credit purchases were up 17% and debit purchases were up 6%. Inflationary pressures continue to contribute to growth in purchases, outpacing growth in transactions. For October, growth in overall transactions was up 8% for credit and 3% for debit.
  • The Consumer Price Index (CPI-U) decreased on an annual basis to 7.7% in October, influenced by higher prices in Energy and Food and lower prices in Used Vehicles, Medical Care, Apparel and Airline Fares. The Fed meets next on Dec. 13-14, with a fifth straight interest rate increase almost certain, although anticipated to be less than the recent 0.75% bumps.
  • In this month’s Deep Dive, holiday spending appears to be off to a slow start, with fewer purchases in clothing and sporting goods showing shifts in consumer spending. Growth in purchases for the overall Goods sector was up 4.1% for credit and 2.9% for debit year over year in October. Amazon, which held its second Prime Day sale of the year on Oct. 11-12, posted stronger growth numbers than other featured retailers with credit purchases up 15.7% and debit purchases up 10.1%.
  • The October average credit card balance per active account was $2,826, up 6.4% (or $171) year over year. Credit card balances surpassed the September 2020 results of $2,787 for the second time since the decline in card balances that began in early 2020. The credit card delinquency rate for October was 1.79%, 14 basis points lower than pre-pandemic October 2019 levels.

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.

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Mastercard SpendingPulse anticipates 15%* U.S. retail sales growth on Black Friday

According to Mastercard SpendingPulseTM, U.S. retail sales excluding automotive is expected to grow +15% on Black Friday compared to last year. Mastercard SpendingPulse measures in-store and online retail sales across all forms of payment and is not adjusted for inflation.
With many big-box retailers, department stores and outlet malls closed again on Thanksgiving Day, consumers will be gearing up for the main event – a Black Friday shopping blitz. Key trends to watch this Black Friday, include:
In-store shopping prevails:  Building on last year’s in-store momentum and the post-pandemic return of doorbusters, window displays and brick-and-mortar collaborations are continuing to drive shoppers back into stores with in-store retail sales anticipated to be up +18% year-over-year.
Department store deals: Department stores are making a comeback with deals and discounts to entice consumers. This Black Friday, Department Store sales are anticipated to be up nearly +25% year-over-year as consumers shop online and in-store at these one-stop shops for all the gifts on their holiday shopping list.
Dining out for the holidays: Restaurants are expected to experience +35% year-over-year growth on Black Friday as consumers prioritize experiences and dining out with friends and family.
Tis the season for travel: Travel companies are also getting in on the promotional holiday. Separate from total retail sales, Airlines (+39% YOY, +14% YO3Y) and Lodging (+32% YOY, +40% YO3Y) are expected to experience double-digit growth on Black Friday as consumers plan their next getaway.
“Expect Black Friday shopping to be in full force across channels this year,” said Steve Sadove, senior advisor for Mastercard and former CEO and Chairman of Saks Incorporated. “While retailers have already been heavily discounting this season, consumers and retailers are likely holding out for some special offers to land on the biggest promotional day of the year.”

Mastercard SpendingPulse October Insights:

As anticipated, early holiday promotions drove consumers online and into stores. According to Mastercard SpendingPulse, October U.S. retail sales excluding automotive increased 9.5% year over year and 23.6% compared to October 2019. E-commerce sales in October grew 12.7% YOY and 96.0% YO3Y. Experiential sectors including Restaurants, Airlines and Lodging all saw double-digit growth compared to both 2021 and 2019.
“In October we saw the strength in the labor market continue to support consumer purchasing power,” said Michelle Meyer, U.S. Chief Economist, Mastercard Economics Institute. “Coupled with heavy online promotions, consumers got a head start on their holiday shopping, fueling another strong month of retail sales.”


*Excluding Automotive

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Building a hybrid culture that thrives

One of the most popular sessions at big.bright.minds. was the continuing conversation around the future of work. Hint: it’s likely hybrid.

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Many people think they have the answer to hybrid work. But not all of those people have actually done the necessary research to inform what would be the best decision for individual employees and for organizations as a whole.

On Day 1 of big.bright.minds., we welcomed back former Filene Fellow Sekou Bermiss, and workplace expert, Doug Leighton, to lead a discussion on the future of work and what credit unions should know as they begin, or continue, their journey with hybrid work strategies.

Hybrid work is here to stay.

Much like what the pandemic did to accelerate existing trends, remote work is not slowing down. Where there used to be a stigma against working from home, you now see it as a benefit on most job postings.

A recent study by the Atlanta Fed said that people that shop or switch jobs, can increase their hourly pay by 7%. Credit unions experimenting with any level of remote work have to find ways to engage their staff because they have monetary incentives to shop around and if they don’t have any level of engagement with your credit union, it makes it all that much easier for them leave. A true hybrid strategy has never been more important when it comes to engaging valued employees and attracting new ones.

A true hybrid strategy has never been more important when it comes to engaging valued employees and attracting new ones.

Start by simply defining hybrid. Hybrid means some remote, some in person. If you let that become more and more remote, you end up getting less and less attachment to your organization and ultimately higher levels of attrition. There is an effect. It’s important to figure out a way to bring people in.

In his work on the War for Talent, Sekou conducted research on attracting and retaining top talent. An effective hybrid strategy is going to be one part of the winning solution to attract and retain top talent.

There is still friction surrounding back-to-work strategies.

In true hybrid fashion, Doug Leighton joined us in-person while Sekou Bermiss joined us virtually for this session.

Many senior leaders worked in the office during the pandemic which influenced their perception around work from home. Universally frontline staff loved working from home leaving managers stuck in between the two preferences. While they like the flexibility of work from home, there needs to be a level of consistency.

Sekou Bermiss frames this best using the Bayesian statistics model, “one of the key things with Bayesian is to identify what are your priors. What is your prior understanding of what’s going on in the data? Then, let that inform where you start the discussion.” Sekou notes that they identified two different priors being used within credit unions when it came to workplace strategies. Leaders who never really started working from home – their prior is work is at the office. While many others went home and did not see the office at all – their prior is home is where work is.

Part of the solution has to take into account those priors with each side recognizing the others’ priors and then lean into a collaborative solution for everyone.

Don’t decay trust. Enhance it.

One of the more troubling discoveries from their interviews with credit unions was the degradation of trust across all levels within credit unions. Some leaders expressed concern that it feels as if employees were taking advantage of being remote and having more autonomy. On the flip side, some employees shared that their organizations are just bringing them in to justify costs that were already fixed. 

These kinds of conversations and pivotal moments often fall to the middle managers.

This is where communication is key. Without open and honest conversations on why decisions are being made, trust will continue to wane on both sides. A lot of these kinds of conversations and pivotal moments fall to the middle managers (see Sekou’s final comment below). Be courageous enough to open those conversations up, encourage your leadership to be vulnerable, and create space for employees to be vulnerable. You will begin to repair and maintain that trust.

The policies and metrics leaders put in place can be shaped in a way that enhances trust rather than decays it. Be clear in your expectations of why you’re asking employees to come in. And open up space for feedback and time to process and take action on that feedback. You will end up building a more holistic and comprehensive approach and that will be essential to maintaining a good, open and trusting culture in hybrid workplaces.

There is no right or wrong way to approach hybrid workplace strategies.

Ultimately it is up to the individual credit union to decide how they will approach this new hybrid workplace culture that fits best for them. Doug and Sekou shared two final vital take-aways to help leaders find the right approach for their team.

Doug Leighton: Roles versus rules.
“If you’re going down the path of a roles-based approach, take a look at the individual responsibilities and how those responsibilities overlap. Build your hybrid program reflective of that as opposed to just blanket approach of a couple days a week. There’s no playbook because each credit union is different and the way that your employees interact is different. But each credit union has the capacity to take that hard look and ask, can this job be done remotely? Should it be done in person? If yes, why should it be done in person?”

Sekou Bermiss: Training support for middle managers.
“Most of the credit unions we interviewed were developing internal training, but the content needs to be developed carefully. Take the time to identify the specific skills that middle managers feel they lack or that they’re not confident with. The most common skill we picked up on was how to have difficult conversations. We’re having more conversations about how home life is impacting work than ever before and a lot of managers are uncomfortable with that kind of conversation. Getting these very specialized sorts of training to the folks who are at the frontline is critical. I believe that middle managers are the linchpin in not only keeping the workforce going, but also these are going to be the leaders in 10-15 years. And so, providing them with those skills is not only going to be important now, but as credit unions move forward.”

Watch the full session now.

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