Consumer Payment Card News

Trade Tariffs with Mexico & China Spook Consumer Confidence

Trade Tariffs Mexico China

Trade tariffs with Mexico and China are spooking consumer confidence in May particularly among women aged 60 and older. While the latest consumer confidence indices show a short-term slide or slowing, on a long-term basis consumers expect the economy to grow at a solid pace.

Besides the “Trump Tariffs,” there is spreading pessimism among economists the recovery may be nearing an end. While rampant on Wall Street, this concern has yet to make its way into Main Street, notes Robert McKinley, Senior Analyst for CardTrak.

Florida Consumers

After reaching its highest level in 17 years, consumer sentiment among Floridians plummeted 5.3 points in May to 96.4 from a revised figure of 101.7 in April. The last time consumer sentiment dropped more than five points was four years ago, in May 2015.

According to University of Florida Consumer Sentiment Index, released today for May, all five components of its index declined. Opinions of personal finances now, compared with a year ago, decreased 9 points from 97.5 to 88.5, the steepest decline in May’s reading. This attitude is shared by all Floridians across sociodemographic groups, but is particularly strong among women, those aged 60 and older, and those with income above $50,000.

Similarly, feelings as to whether this is a good time to buy a major household item like an appliance decreased 2.3 points from 106.4 to 104.1. These downward readings were shared by all Floridians with the exception of men, whose reading showed a small, favorable change.

The Bureau of Economic and Business Research notes even though the Florida and U.S. economies have been booming, it will become the longest expansion on record in July. The leftover effect of the Federal Reserve’s quantitative easing program involving the purchase of nearly $4 trillion in treasuries and mortgage backed securities, as well as the 2018 tax cut legislation which temporarily flooded the economy with cash is a current factor. As the Fed begins to sell treasuries and securities and the effect of the tax cut wanes, the economy must sustain the expansion on its own. Recessions are a natural part of the business cycle and we have likely delayed the next one as long as is possible. We are seeing signs of the beginning of a slowdown in declining home prices and sales.

National Consumers

Meanwhile, on a national level, The Conference Board Consumer Confidence Index improved in May, following an increase in April. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – increased from 169.0 to 175.2. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – increased from 102.7 last month to 106.6 this month.

Consumers stating business conditions are “good” increased from 37.6% to 38.3%, while those saying business conditions are “bad” decreased from 11.3% to 10.2%. Consumers’ assessment of the labor market was also more positive. The percentage of consumers stating jobs are “plentiful” increased from 46.5% to 47.2%, while those claiming jobs are “hard to get” declined from 13.3% to 10.9%.

The Conference Board notes the gain in May is now back to levels seen last Fall when the Index was hovering near 18-year highs. The increase in the Present Situation Index was driven primarily by employment gains. Expectations regarding the short-term outlook for business conditions and employment improved, but consumers’ sentiment regarding their income prospects was mixed. Consumers expect the economy to continue growing at a solid pace in the short-term, and despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead.

Credit Cardholders

Last week CardTrak reported U.S. consumer credit card losses are rising no matter how you slice or dice it, reflected by all indices. In the face of a strong economy, bubbling U.S. consumer confidence may have induced cardholders to bite off more than they can chew. Americans are falling further behind in credit card payments as reflected in the amount of consumer credit card debt more than 30 days past due as well as accounts seriously past due (more than 90 days).

The latest S&P/Experian Consumer Credit Default Indices for April reveals consumer credit defaults fell four basis points (bps) from last month, to 0.88%. The bank card default rate rose 15 bPs to 3.83%. The auto loan default rate was unchanged at 0.94%. The first mortgage default rate was five basis points lower at 0.65%.

Credit card delinquency is also rising among the nation’s top issuers prompting issuers to beef-up loan loss reserves.