We are revisiting a topic we began to cover during the September Market Pulse Webinar: preparing for the holiday shopping season despite concerns like inflation, rising interest rates, rising mortgage rates, and the resumption of student loan payments. 

We explored various consumer segments as well as how these economic factors are impacting consumer wallets and financial durability, and we also discussed key macroeconomic and consumer credit insights to help you focus on moving forward even during uncertain times.

We welcomed expert panelists Amy Crews Cutts, President & Chief Economist at AC Cutts & Associates, and Tom O’Neill, Risk Advisory Practice at Equifax. Tom Aliff, Risk Consulting Leader at Equifax, moderated our dynamic discussion with guest speaker MIke Spriggs, Director of Product Development at Fiserv.  

Macroeconomic Update By Amy Crews Cutts

Amy Crews Cutts shared an illuminating update of current macroeconomic data and trends. The question-at-large is: are consumers about to run out of gas? As household real cash balances are at the lowest level since April 2020, consumers are relying heavily on credit cards for necessities. Since wages are just beginning to exceed inflation, there are real concerns about the economic outlook. 

Further, economists expect softening in consumer spending and outright declines in industrial production over the next three quarters before recovering. Higher interest rates are slowing the housing market, leading to less turnover, and economists now expect a recession, if it happens, to begin next year.

So, where do we go from here? We must look to the federal government for a better idea. Fiscal policy is the primary risk, though monetary policy risk is still a factor; this round of tightening by the Fed is the most aggressive in the modern period. Additionally, the Federal fiscal year 2024 Budget Crisis is still on the horizon.

Currently, this means Congress passed a short, temporary budget extension. If a government shutdown takes place on November 17, it would likely be more devastating economically than if it had happened in October due to proximity to the holiday shopping season. 

Unfortunately, this is a bit of a wait-and-see situation. 

Consumer Credit Insights

Now, let’s summarize current consumer credit observations. 

When it comes to originations, first mortgage year-over-year originations, auto year-to-date originations, and the subprime share have all declined. Bankcard limit originations continue to grow year-over-year as the subprime share has declined; new card originations are on pace to equal last year’s record high levels. Private label cards, as well as the subprime share decreased sharply, and home equity revolving limit, as well as unit originations, also fell. 

Regarding debt, mortgage debt is up, non-mortgage debt remains at its highest point, revolving debt is at its highest level, and non-revolving debt increased after decreasing five straight months. Yikes. Bankcard line amounts have been extended and continue to rise, large increases in average card balances are common, and delinquencies have risen across the board month-over-month.

No, this was not a Halloween-themed webinar, even with that spooky report. The interesting thing of note is this is an overview, while the true picture requires a deeper understanding. We discussed a “K-Shaped Economy” where we typically think of the “top of the K” having high affluence, spending power, and financial durability, and, conversely, the “bottom of the K” having low affluence, spending power and financial durability. However, the consumer model is much more nuanced and can be broken into 71 different segments.

As someone in the financial industry, it is important to look beyond just a single, macro-level trend and understand what's going on at that consumer level.

Holiday Season Outlook

Guest speaker Mike Spriggs of Fiserv took us through the consumer’s journey starting with last year’s data, then sharing some of the trends we are seeing this year in the run up to the 2023 holiday season.

The 2022 holiday shopping season gave us significant “Pull Forward” activity in October by large merchants which stifled the Black Friday weekend, resulting in retail underperforming overall for the season. Sales in eCommerce expanded while brick-and-mortar stalled, but travel and experiential spending were in much higher demand.

Now, looking ahead to the 2023 holiday season, we are again seeing early aggressive sales campaigns to usher in holiday spending. Economic indicators suggest consumers are ready to open their wallets, and that they will be relying heavily on their credit cards. We think overall spending will be up versus 2022,  most likely for services, recreation, and travel. 

How do we know? Over the past year, consumer preferences have continued to re-balance as we have seen sentiment being ahead of where it was this time last year. Moreover, it is trending higher with the October forecast appealing to become the strongest “holiday month” for retail. Year-to-date trends suggest holiday retail spend will disappoint again, but will probably outperform 2022.

Final Thoughts

After each presentation, there was a lively panel discussion that shouldn’t be missed, so make sure you watch the October webinar recording if you did not catch it live. 

 

* The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published herein represent the views of the presenters as of the date indicated and do not necessarily represent the views of Equifax or its management.