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Consumers turn to credit cards for food and gas

Credit card volume up 10% in June, highest rise in a year

More people are charging for their necessities, in the wake of strapped merchants passing along more of their increasing costs to their customers.

Credit card dollar volume rose 10.7% in June compared to June 2010, the largest increase in that category in more than a year, according to figures from SpendTrend, an ongoing study by First Data Corp. The study looks at payment trends in the U.S. in multiple categories. (In the same period, year over year, PIN-based debit dollar volume grew 6% and signature-based debit rose by 8.5%. Usage of checks at point of sale fell year over year by 12.6%.)

“Credit surpassed all other payment types for the second consecutive month as consumers increasingly have been purchasing non-discretionary goods on credit,” the report stated.

Price inflation appears to be the culprit, according to First Data.

“Many merchants can no longer assume the rising costs of doing business and have been forced to pass those costs through to the consumer,” First Data reported. “As a result, consumers are spending more on non-discretionary items such as food and gasoline, leaving less of a margin for discretionary spending.”

The July 12 report noted that gas prices have stabilized, but that they remain high--generally 30% higher than in 2010. Dollar volume growth in consumer spending at the pump, overall, was up 31.2%.

An indication of the skew in spending is that dollar volume growth in all other categories was in single digits--7.5% year over year. The increase in monthly spending across all categories came to 8.8% year over year. This growth rate represents a 13-month high, First Data reported.

Interestingly, in spite of the ongoing flood of gadgets to buy, spending on electronics and appliances fell by 4.6% year over year. This was a notable and singular exception among all the categories that First Data tracks.

First Data’s SpendTrend reports are based on actual card-based volume tracked at the point of sale and is not seasonally adjusted. In discussing the increase in spending on necessities, the report also noted that:

“As inflation continued to rise, credit transaction growth has increased for three consecutive months. The Federal Reserve reported that revolving credit balances increased in May for just the second time in nearly three years, reinforcing the trend of consumers leveraging up to pay for non-discretionary goods and services.”

In a podcast (see below), First Data described the credit card growth as a “head fake” for those who had hoped such growth would indicate economic improvement. With inflation driving this report, such hope is not yet warranted.
 

Topics: Payments,

Steve Cocheo

Steve Cocheo’s career in business journalism has taken him to all 50 states and nearly every corner of banking in institutions of all sizes. He is executive editor of ABA Banking Journal, digital content manager of ababj.com, and editor of ABA Bank Directors Briefing. He coordinates the popular Pass the Aspirin and First Person features and wrote the booklet series Focus On The Bank Director. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors.

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