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February spending trends: Strong month as further uncertainty looms

CO-OP Payments Trends Report (Spending Data from February 1-28)

March 15, 2022 – Whereas January’s headlines were all about the fast-moving Omicron variant, attention turned in February to rising inflation, a looming war in Europe and a stock market that dipped into correction territory.

Much of February’s economic data was positive, with stronger-than expected job growth of 678,000 non-farm payrolls, a modest decline in the unemployment rate to 3.8%, and a rise in worker productivity of 6.6% for the fourth quarter of 2021.

But several storm clouds are gathering. Russia’s invasion of Ukraine, rising energy prices, historic levels of inflation, a teetering stock market and the Fed’s promise to raise rates beginning in March all point to rough weather ahead. In fact, based on these indicators, a number of leading economists forecast a likely recession in the next couple of years, even as the U.S. continues to recover from the pandemic downturn of 2020.

Co-op’s member credit union payment portfolio data showed mostly strong month-over-month results across several merchant categories in both debit and credit, most notably those that underperformed for much of the past year, including Travel, Lodging, Camping and Sport/Recreation. This is a positive sign that consumers are eager to re-engage in activities they were missing during the pandemic.

Here are some of the key spending trends Co-op’s SmartGrowth experts are watching closely this month:

#1: Travel, Sports and Recreation Spending Picking Up

Co-op’s February credit union spending data showed strong double-digit month-over-month increases in the Travel merchant category, while the Lodging, Campers & Camping and Sport/Recreation categories also had healthy growth. These patterns were fairly consistent across both debit and credit.

“Our February spending data shows that consumers started making their last-minute travel plans for the spring once concerns with the Omicron variant started to dissipate,” said Beth Phillips, Director at Co-op Solutions.

#2: Education, Computers and Office Show Declines

 February Co-op credit union data showed a softening in spending in the Education, Computers and Office categories. While education spending was basically flat by count in both debit and credit, it showed double-digit decreases in amount and interchange across both portfolios. This indicates that as students return to school and campus, they are spending less on pricy supplies and technology that they may have needed to learn from home.

Meanwhile, the Office category fell by 10% in credit count for the month, reflecting an uncertain outlook for the next few months as employers begin asking staff to return to the office.

“It’ll be interesting to see what happens in the job market as employers begin requiring staff to return to the office,” said Phillips. “The Great Resignation saw a lot of people leave their jobs over the past year. Now, it’s the time of year when people traditionally receive merit increases, and raises may not keep up with the fast pace of inflation. This may lead to an uptick in workers leaving their jobs for greener pastures.”

According to a SHRM survey of employers taken between November 2021 and January 2022, 85% of those surveyed were “concerned about rising inflation eroding the value of pay increases.”

 #3: Cardholders are Shifting to Credit

 The year is young, but Co-op experts predict that fear and uncertainty concerning evolving economic and geopolitical factors, along with increasingly competitive rewards programs, will spur consumers to begin shifting their spending from debit to credit, after a steady move toward debit over the past year-plus.

“One reason why consumers are moving to credit from debit are the rich rewards offered on their credit card,” said Phillips. “Earning rewards points on eligible categories like travel helps to lessen the impact of these large-dollar purchases.”

“With rising inflation, supply chain issues and a war in Europe, there will be real-world impacts to credit unions’ card portfolios,” said John Patton, Co-op Senior Payments Advisor. “Consumers may begin shifting more to spending on credit as a way to hold on to cash for safety, while avoiding riskier investments like cryptocurrencies.”

What Credit Unions Should Do Now

 Rewards are where the action is at the moment, as consumers get back to dining, travel and events. Whereas a 1% reward rate was sufficient to be competitive not very long ago, a minimum rate of 1.5% is now considered table stakes to be in the game.

“While a one-to-one rewards earning structure is still prevalent across the industry, a growing number of organizations are offering richer earn rates closer to one and a half points for each dollar spent,” said Phillips.

A number of leading issuers are getting creative with their rewards programs, and offering higher cash back rates for purchases of goods and services most affected by inflation, such as fuel. These programs also seek to reward cardholders for spending on travel, dining and experiences – exactly those activities that consumers have been eager to resume since the start of the pandemic.

For example, the Costco Anywhere Visa Card by Citi offers 4% cash back rewards on gas purchases, 3% on restaurants and eligible travel purchases, 2% cash back on all Costco purchases, and 1% on everything else.

“To ensure success in 2022 and beyond,” said Phillips, “credit unions should evaluate their standard rewards program earn rates against the competitive marketplace, and then look to complement these benefits with richer, short-term promotional offers throughout the year.”

Month-Over-Month Category Level Spending (Comparing February 2022 to January 2022)

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

  Credit Debit
  Count Amount Interchange Count Amount Interchange
Category Monthly Change Monthly Change Monthly Change Monthly Change Monthly Change Monthly Change
Amazon/Bookstores -17% -15% -15% -16% -16% -17%
Digital Goods -11% -8% -7% -10% -7% -10%
Dining and Entertainment 0% 1% 1% -1% 0% -1%
Education -1% -29% -25% 3% -24% -13%
Gas -2% 2% 0% -2% 1% -1%
Grocery -5% -4% -3% -5% -4% -4%
Lodging 5% 4% 4% 1% 1% 1%
Medical -3% 0% -1% -2% 1% 0%
Retail -3% 0% 0% -2% 2% 0%
Travel 8% 19% 19% 7% 12% 12%
Computers -14% -10% -9% -18% -13% -15%
Office -10% -5% -6% -7% -1% -5%
Campers & Camping 2% 7% 5% 2% 7% 0%
Home Improvement -7% -2% -2% -6% -1% -2%
Sport/Recreation -1% 2% 1% 1% 5% 3%

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