The Credit-Debit Switch Confirms Signs of Economic Distress
Many of the trends in consumer spending that took hold in July are easy to understand: according to the latest edition of First Data’s SpendTrend analysis, back to school shopping and increased vacation time led to jumps in spending on clothing and hotel nights, for example.
And, as those are categories which consumers typically pay for with credit cards rather than debit, we subsequently saw an increase in credit spending for July overall, explains Rikard Bandebo, head economist at First Data.
But while that aspect of change to consumer spending is relatively cut and dry, other trends require a more watchful eye on the part of payments companies, Bandebo says. In particular, that switch between credit and debit spending may speak volumes about the state of the economy.
When consumers started putting everyday purchases on their credit cards, many analysts interpreted this as a sign of consumer confidence at first. But Bandebo says recent research has shown the opposite to be true; when consumers go to credit for everyday purchase categories, it’s a sign of economic stress, he says.
Hear more of what Bandebo has to say about the latest edition of First Data’s SpendTrend economic analysis below. Then, visit the PYMNTS.com Report Store to obtain not only Bandebo’s insights, but also a rich set of point-of-sale spending data — collected through First Data’s processing partnerships — that represents nearly half of all U.S. commerce.
Head Economist, First Data Corporation
Rikard Bandebo is First Data Corporation’s Head Economist and leads First Data Advisors. He was previously a Senior Director and the global manager for the Investor Relations Roundtable and JM Lafferty Associates at the Corporate Executive Board. He has also worked in M&A and joint ventures for Ford Motor Company and several other organizations. Rikard completed his post-graduate research and undergraduate degrees at the University of Edinburgh (UK).
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