Wells Fargo data reveals credit card volume “losing steam”
Americans have been resilient in their spending habits despite inflation and high interest rates, but there are indications that their willingness to pay steep prices may be waning. According to new data from Wells Fargo, credit card volume, which measures spending by both credit and debit cardholders, increased by 5.3% to $2.6 trillion during the July to September period. Although this represents growth, it is significantly slower than the 13% increase seen in the same period last year and the 25% surge in the third quarter of 2021.
The Wells Fargo report states that “card volume growth has slowed during 2021, implying a moderation in consumer strength” following strong growth in 2021 and 2022. While a robust job market and substantial wage increases have supported consumer spending in recent months, experts predict that consumers will become more cautious in the near future due to the resumption of student loan payments and the persistence of high interest rates. Additionally, more Americans are relying on credit cards to cover basic necessities, resulting in credit card debt surpassing $1 trillion this year and an 11-year high in delinquencies in August.
High inflation continues to burden households
Despite a recent cooling down, inflation remains at 3.7% compared to the previous year, according to the Labor Department’s latest data. This persistent inflation has placed significant financial strain on American households, who are paying more for essential items such as food, gasoline, and rent. Low-income individuals are particularly affected, as their already stretched paychecks are more heavily impacted by price fluctuations.
Retail industry prepares for potential spending reduction
Walmart, a bellwether for the retail industry, has issued a cautionary statement regarding consumer spending in the second half of the year. The company cited potential risks to its profit margins, including the resumption of student loan payments, rising gas prices, and high interest rates. Other brands and retailers that may be affected by a reduction in spending due to the restart of student loan payments include American Eagle Outfitters, Carter’s, Crocs, Foot Locker, Canada Goose, Gap, Nordstrom, Nike, Steve Madden, Under Armour, and Victoria’s Secret, according to a recent UBS note.
As the U.S. economy navigates these uncertain times, it remains to be seen how consumers will respond to the ongoing challenges of inflation, interest rates, and increasing debt.