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The Green Sheet Online Edition

December 12, 2022 • Issue 22:12:01

Insider's report on payments: Consider today’s economic upside

By Patti Murphy
ProScribes Inc.

I'm not an economist. I'm just a working stiff old enough to have witnessed quite a few wild economic swings. I'm talking sky-high inflation when mortgage rates were north of 18 percent and major recessions when unemployment rates ventured into double-digit territory. And that was all during a single decade, the 1980s. So, I'm a little perplexed by all the talk about a coming recession. Or is it inflation? As I write this column, Americans are coming off a record-breaking Thanksgiving weekend spending spree. In all, 196.7 million Americans hit the stores or shopped online during the five-day shopping holiday that began Thanksgiving Day, according to the National Retail Federation. Yet, in the same news feed where I learned this, other headlines portended economic calamity.

I don't believe anyone knows for sure which direction the economy is headed. Too many external factors are at play, like wars (economic and military), natural disasters and a potential resurgence of COVID, to name a few. Attitudes also play a big role. If the prevailing economic attitude is positive, that typically plays out as increased spending, investment and hiring. The inverse is also supposed to be true. But these are not "typical" times. On two separate days in March of 2020 U.S. stock exchanges lost a greater share of value than occurred in the stock market crash of 1929. Yet, just a week later, the exchanges posted one of the largest single daily percentage gains ever recorded.

U.S. gross domestic product—which measures spending, investments and exports—fell into negative territory in the first two quarters of this year, triggering concerns over an impending recession, only to grow at an annual pace of 2.9 percent in the third quarter.

Strong consumer spending

Meanwhile, recent reporting points to strong consumer spending and credit demand. The Federal Reserve Bank of New York, which regularly surveys consumers on their credit usage and expectations, reported in November that demand for credit cards prevails even as demand for other forms of credit slackens.

"The strength in credit card demand and access coincided with the record growth in credit card balances over the past year," the New York Fed said in a press release. "Looking ahead over the next 12 months, households anticipate they will be less likely to apply for an auto loan, mortgage or mortgage refinance loan, but report a higher average likelihood of applying for a credit card or credit card limit increase."

Consumers showed their willingness to spend online and in-store over the Thanksgiving holiday. "As we expected, a record number of consumers shopped in stores each day during the five-day shopping period," said Matthew Shay, NRF president and CEO. "Of the 196.7 million holiday weekend shoppers, nearly 123 million shopped in stores, up from approximately 105 million in 2021, a 17 percent increase."

Adobe Analytics reported that Americans spent $5.3 billion online Thanksgiving Day, up 3 percent over 2021, with mobile shopping driving 55 percent of online spend. Online spending on Black Friday totaled $9.1 billion; on Cyber Monday consumers spent $11.3 billion online, Adobe said.

Mastercard SpendingPulse, which measures online and in-store spending across all forms of payment, and is not adjusted for inflation, found in-store sales were up 10.5 percent over 2021 from Thurs., Nov. 24 through Sun., Nov. 27. Ecommerce sales during those four days were up 12.5 percent over 2021 sales, Mastercard reported. Cyber Monday brought 10.9 percent year-over-year growth for ecommerce sites, while in-store sales rose 9.2 percent that day, according to Mastercard. Spending at restaurants and apparel and electronics stores charted the largest gains.

"Thanksgiving weekend retail sales experienced growth online and in-store as deals across channels enticed consumers to shop where and when it was convenient," said Steve Sadove, Mastercard senior advisor. "Not only did consumers get their holiday shopping in [over Thanksgiving weekend], they also dined out with family and friends," added Michelle Meyer, Mastercard chief economist for North America.

The NRF predicts that retail sales during the 2022 year-end holiday season will total between $942.6 billion and $960.4 billion, which works out to an increase of between 6 and 8 percent over 2021. Per-person spending is expected to average $832.84. "This holiday season cycle is anything but typical," said NRF Chief Economist Jack Kleinhenz. "NRF's holiday forecasts take a number of factors into consideration, but the overall outlook is generally positive as consumer fundamentals continue to support economic activity."

Other experts share his optimism. "Shoppers are continuing to spend despite inflation and economic headwinds, and while higher prices will drive some of the increase in holiday spending this year, overall retailers are poised for a successful holiday season," said Tom McGee, president and CEO of the International Council of Shopping Centers. Shopping local pays dividends American Express estimated consumers spent $17.9 billion both online and in-person at small businesses on what has become known as Small Business Saturday.

The federal government estimates there are 33 million small businesses operating in the United States. AmEx began a concerted effort in 2010 to promote holiday shopping at these businesses on the Saturday following Thanksgiving, and the event has been gaining steam ever since.

Recently released AmEx research revealed that the "shop small" movement contributes significantly to local economies. Sixty-eight cents of every dollar spent at a small business in the United States stays in the local community, according to AmEx's research. And every dollar spent at a small business creates an additional 48 cents in local business activity from local businesses and their employees.

Gift cards top many gifting lists

Gift cards are one of the most popular gifts to give and receive this year. A survey of consumers by the consultancy Deloitte found three out of four expected to purchase gift cards this holiday season, with an average spend of $252. On the other side of the gifting process, an NRF survey found 54 percent of consumers want to receive gift cards, outpacing nine other categories of popular gifts.

Here are other popular gift-buying plans, as predicted by Deloitte:

  • Clothing and accessories (with an estimated average spend of $262)
  • Electronics and accessories ($209)
  • Food and beverage ($202)
  • Toys and hobbies ($177)
  • Home and kitchen ($157)
  • Health and wellness ($126)

"High prices have holiday shoppers prioritizing their purchases, but there are bright lights throughout the season," said Nick Handrinos, Deloitte vice chair. Deloitte surveyed both consumers and retailers in September and found retailers to be especially optimistic about the year-end holiday season, with 77 percent expecting sales totals this year to exceed 2021 holiday sales totals.

Deloitte also found that better than half of the consumers it surveyed had plans to use smartphones for their holiday shopping.

The Electronic Transactions Association and The Strawhecker Group also surveyed consumers on their holiday shopping plans, and probed their usage of new payment methods. Forty-eight percent said they use digital wallets; 39 percent use tap-to-pay/NFC-enabled payments.

Another noteworthy finding of the ETA-TSG survey: four out of 10 digital wallet users are at least "somewhat confident" leaving the house without a physical wallet. Commenting on the survey results, Jodie Kelley, the ETA's CEO, noted that "when it comes to adopting new payments technology, ease of use is most important." end of article

Patti Murphy is senior editor at The Green Sheet and self-described payments maven of the fourth estate. She also co-hosts the Merchant Sales Podcast. Follow her on Twitter @GS_PayMaven.

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