Shopping is one of America’s favorite pastimes. During our last Market Pulse Webinar, "How to Prepare for the Holiday Shopping Season” we explored what economic indicators have to tell us about this upcoming holiday shopping season. Inflation, loan repayments, and credit card delinquencies were top of mind during our October 13 question and answer session.
As inflation bears down on consumer demand, we can expect consumers to continue to shift their holiday spending habits. Retailers and other businesses that are proactive and understand these economic factors and the impact to their businesses will be best positioned for success. Our webinar presenters and experts answer your questions below.
Do you see an increasing disconnect between core and headline inflation?
Rob Wescott: Yes, energy is about 8% of the weight of the CPI and food prices are about 13%. Those are two things that are different between core and headline. They've been leading prices in the up direction. I do think energy prices are going to start to come down. We're going to start to see those things moving a little more closely. This inflation seems to be getting embedded more and more in services. Although inflation seems to be sticking around, some sectors of the population are prioritizing loan payments over other expenses.
Why have student loan payments seen a priority spike when Covid19-payments were paused?
Tom Aliff: We have seen a rise in delinquencies. What I'd recommend is to really understand the rise in delinquencies. We are going to enter into this with all the increases in payments occurring. Consumers are having a form of personal recession. Even though many are still thriving, there are those that are going to struggle. It is going to be a race to find out what they end up paying. From that standpoint it's really important to know. Did someone not pay an account that is not on your books? This is a very heavy and strong predictor of the future payment behavior on a US portfolio like we've seen. For instance, in a near prime credit card situation, if someone didn't pay their auto loan, for example, they were ten times more likely within the next three to six months to move into a delinquent category. That's where the challenge exists. Did someone not pay an account that is not on your books? It's a race for understanding where payments are made.
Do you see a decrease in credit quality with increasing BNPL lending for consumables?
Mike Spriggs: As far as consumers using credit across categories that are highly consumables driven:
The general observation here is that while credit share of total spending has increased over the last three years, and YoY credit spending growth has been strong - - total spending YTD in these same categories has really struggled for growth.
As was pointed out on the webinar – although consumers have reported (via survey-based data collection) that some categories are very popular for BNPL usage, our data does not show this has translated into a boost for those categories’ growth overall.
This data might actually serve as a signal of the impact of diminished personal savings rates – using credit and BNPL vehicles to make purchases that are otherwise more difficult to accomplish or unattainable. The aggregated SpendTrend data does not have an identifier that will flag a credit card payment as BNPL-related.
What does all of this mean?
Inflation is here to stay through the holiday season and “seems to be getting embedded more in services” according to Rob Wescott. People are prioritizing some loan payments over others, and student loans are expected to return to the bottom of the list. “Consumers are having a form of personal recession that we’re describing. It is going to be a race to find out what they end up paying” says Tom Aliff. Mike Spriggs echo’s his colleagues with some statistics showing that although credit spending “has increased over the last 3 years, (...) YTD the same categories have struggled for growth.”
For more, download the webinar deck and watch our full recording here.
* 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.