As the summer winds down, the state of the economy weighs on the minds of many.
But the news is not all bad as some measures of economic health have shown improvement in recent weeks. The inflation rate hovered near four-decade highs in July, but decelerated slightly as energy and gas prices fell. Signs that inflation may finally be softening led U.S. consumer sentiment to rise in early August, continuing a slow recovery from record lows earlier this summer.
The job market remained the most resilient corner of the economy, as non-farm payrolls rose by a robust 528,000 in July, easily outpacing consensus estimates and dropping the unemployment rate to 3.5%. But concerns remain of a looming shift from high-paying to low-wage jobs as a broad selection of major employers including Ford, Wayfair, Peloton, Best Buy, and Walmart have all recently announced their intentions cut staff. According to PwC, half of all companies plan to reduce headcount over the next six to 12 months.
To help your credit union plan ahead for a busy fall season, here are 5 payment predictions from Co-op’s SmartGrowth experts:
- Back-to-school season will be extended: Back-to-school is the second largest shopping season of the year, behind only the Winter Holidays in importance to retailers. That’s one reason why merchants are hoping for a particularly strong back-to-school season, as high inflation and ongoing recession fears could cause consumers to tighten their pocketbooks later this year.
These same economic drivers may propel an extended back-to-school shopping period this year. According to a recent survey of over 2,000 U.S. parents, only 36% said they could afford back-to-school shopping for their children, down from 52% last year. And 37% are feeling stressed about being able to afford these purchases—up from 32% last year.
These stressors are likely to help extend school-related purchases over a longer time period. The combined impacts of high inflation and the end of the pandemic stimulus check program means parents have less discretionary income to spend this year versus last. Cash-strapped parents will focus on buying only what is necessary to get their kids started in the classroom now—critical items like supplies and books, rather new clothes and shoes—while deferring discretionary purchases for later on in the fall.
According to Beth Phillips, Managing Director, Strategic Portfolio Growth at Co-op, this year’s back-to-school season is starting to show some “Black Friday behaviors.”
“It’s proved difficult to get some school supplies as well,” Phillips says. “From production issues causing dixie cup shortages to a race to obtain name-brand items requested by schools, last-minute shoppers experienced shortages and delayed delivery on certain items students need for the classroom.”
- More choose to dine out as the economical choice: One beneficiary of the rise of the budget-minded consumer is discount retailers like Dollar General and Dollar Tree. For example, average spend on grocery items at this type of discount store grew by more than 70% over the nine-month period ending in June 2022.
The same study found that grocery store spending fell by 5% between October 2021 and June 2021, spurred by rising prices on staple goods. Inflationary pressures are causing the highest inflationary gap between grocery stores and restaurants in decades, driving more consumers to dine out at fast-food and fast casual restaurant outlets, as these meals become comparative bargains for price-sensitive heads of households.
Combined with a pandemic-weary public’s desire to get out of the home and enjoy social experiences like sit-down restaurants and entertainment, Co-op’s experts anticipate the strong growth in restaurant dining to continue through the rest of the year and into 2023.
- Holidays will come early this year: While back-to-school shopping will be extended, Co-op’s SmartGrowth experts are also predicting an early holiday shopping season this year.
“Retailers are pushing their holiday sales up sooner in the shopping cycle, hoping to catch early shoppers eager to capture good deals,” Phillips says. “To prepare, major brick and mortar retailers are ramping up their delivery, pick up, and in-store service offerings to compete with Amazon and other online-only merchants.”
Meanwhile, let’s not forget about online shopping and digital services, which our experts forecast for continued, steady growth.
“Sales of digital goods will continue to soar right through the holidays, highlighting the need for credit unions to fully digitize their offerings,” Phillips says.
- Travel spending to increase: Travel has already had a strong bounce-back year in 2022, despite high fuel prices and overall inflationary pressures. According to the U.S. Travel Association, the combination of post-COVID pent up demand and consumer savings will provide for continued strong growth through 2022, with slower positive growth in 2023 in both the leisure and business travel sectors. The organization projects total travel expenditures of $1.05 trillion for all of 2022, rising to $1.15 trillion in 2023, which would represent 96% of pre-pandemic spend in the sector.
- Credit card balances will continue to rise: As inflation stays hot and more consumers worry about impending recession, those with access to savings will hoard their cash, taking on more debt to pay for household goods and services.
Unfortunately, not everyone has savings, and many are living from paycheck to paycheck. Recent surveys show that the percentage of Americans who are able to cover a $400 emergency expense has fallen from a high of 68% in November 2021 (when pandemic checks were still rolling in), to as low as 51% in May 2022. As consumers deplete their cash reserves, they will be forced to borrow on credit to cover monthly bills and non-discretionary expenses like gas and groceries.
This is a major reason why Co-op’s credit union client credit portfolio balance data has been showing steady growth each month since late 2021, reaching a year-over-year growth rate of nearly 10% in June.
What CUs should do to prepare:
- Promote your Credit Union’s “every day” benefits
Begin implementing your holiday season communications plan now, and make sure to shout it from the rooftops.
Keep your key messaging clear and concise, and focused on your card products’ competitive differentiators—low everyday rates and minimal fees. Let consumers know that you developed your credit card products with your members in mind. While other credit cards may distract members from their high annual percentage rates (that are rising at record speed) by offering attractive short-term rewards, your card products alone can save your members money every day. Per NCUA, average credit union credit card APRs are just 11.32%, compared with a national average of 19.61%, according to a July Nerd Wallet article.
Credit Unions must promote their overall service offering to members and non-members alike to push their cards top of wallet during holiday spend and beyond.
As the table below illustrates, by choosing a Credit Union, whose average interest rate is 11.32%, a member can pay off an average balance of $3,000 with their credit union credit card, seven months sooner and save over $614.
|2022 Average Interest Rate (APR)
|Average Credit Card Balance
|2022 Average Interest Rate (APR)
|Months to Pay Off Debt
|Total Interest Paid
|Credit Unions 11.32%
- Use key merchant categories to incentivize holiday spend
As you navigate this period of economic uncertainty, it’s a great time to activate your credit card rewards program, and offer special rewards to incent members to use your card at popular merchants, like discount stores, restaurants, airlines and hotels, that will member behaviors during this critical time of year.
Don’t forget to analyze your cardholder data to create targeted campaigns before and during the holidays to specific segments that may need a nudge to move your card top of wallet – or those that are top spenders who can generate additional interchange.
- Anticipate member need for balance transfer promotions to assist with post-holiday spend heartburn
To help those members that are struggling with growing credit card debt on high-balance cards, offer low introductory rate balance transfers. This will both reduce their overall cost of credit, and encourage cardholders to maintain their primary financial relationship with your credit union.
Optimize Your Portfolio with Co-op SmartGrowth:
Fall is on the way, and it’s best to be prepared. Co-op SmartGrowth Consultants can help you maximize returns on your credit and debit portfolios. Discover how Co-op SmartGrowth can help you see beyond basic transaction data, analyzing your card portfolio to reveal new opportunities for growth. Contact us to learn more.