Credit card officials have begun to see U.S. consumers shift spending toward lower-cost products as they grapple with inflation at its highest level in 40 years.
Overall credit card volume soared 20% to $1.1 trillion among the nation’s largest lenders in the second quarter, as many reported record spending for the period. Executives said the recent price spike has done nothing to dampen consumer appetite for travel or goods and services.
“They keep spending very rationally, they keep paying us back,” Brian Wenzel, Synchrony Financial’s chief financial officer, said in an interview, adding that the price hike seems to let customers decide: “I won’t get -maybe not Ben & Jerry’s, I might get Breyers ice cream.” Prior to the second quarter earnings announcement, investors worried about how U.S. consumers were dealing with a myriad of headwinds, soaring inflation and rapidly rising interest rates at the persistent coronavirus pandemic. But, one by one this week, credit card officials said consumers seem to be holding up well so far.
“While there may be clouds, they’re pretty far out there,” Roger Hochschild, chief executive of Discover Financial Services, said in an interview. “Consumers in our segment remain in good shape.”
By the start of the year, US consumers had amassed $2.5 trillion in excess savings, which they used to continue paying down debt and paying bills. Net charge-off rates for the nation’s five largest credit card lenders fell to an average of 1.9% in the second quarter, from 2.6% a year ago.
“I am, however, struck by the strong starting point for consumers as we consider potential headwinds from inflation and more economic problems,” Capital One Financial Corp. chief executive Richard Fairbank said during a briefing. a conference call with analysts. “I would compare that, of course, to the Great Recession or the Great Financial Crisis, where the consumer was in a much weaker position before that.”
American Express Co. said on Friday that travel and entertainment spending surpassed pre-pandemic levels for the first time in April, a surge that helped push business billed worldwide to a record high. $340 billion in the second quarter. Shares of the company jumped 7.1% in intraday trading after the release of second-quarter results and ended the day up 1.9%.
“When you look at bookings that are three to six months further out, they’re just as strong today as they were in May,” AmEx chief financial officer Jeff Campbell said in an interview. “Pent-up demand isn’t going away anytime soon.”