If consumers were worried about a government shutdown or stalled debt ceiling talks affecting the economy, they didn't show it by holding off on credit card spending in October, a First Data Corp. report indicates.
Credit card spending growth outpaced PIN-and-signature debit transactions last month, marking the tenth straight month in which consumers have turned to their credit cards more often for spending, according to First Data's SpendTrend analysis comparing October 2013 spending to October 2012.
The government shutdown and debt ceiling talks were widely expected to dent consumer confidence and potentially spending growth, said Krish Mantripragada, senior vice president of information and analytics solutions at First Data, but "we did not see any adverse effects in the full month of October results."
The Atlanta-based payment processor and acquirer tracks same-store consumer spending through credit, signature-and-PIN debit, electronic bank transfers, prepaid and checks at U.S. merchant locations.
Dollar volume on credit spending grew 7.7%, while signature debit was 6% and PIN debit 6.2% for the month. The credit growth increased over September's 5.8%, indicating that consumers are increasingly turning to credit cards to fund "discretionary purchases," the report stated.
First Data does not report base volumes on the increases, but Mantripragada says credit dollar volume growth was 8.9% in October of 2012, while PIN debit was at 6.7% and signature debit at 2.9%.
Because of a period of steady growth, Mantripragada said the dollar volume increases were not surprising for October. "First Data, as well as the payments industry, benefits when consumers increase utilization of electronic payments."
The shutdown may have had a reverse effect on consumers in actually spurring the use of credit cards, according to Brian Riley, senior research director and analyst with Boston-based CEB TowerGroup.
"If you were afraid you weren't going to get a paycheck for a period of time, you would turn to your credit card and use your available credit," Riley said.
First Data's numbers represent "a sizable chunk" of the country's retail market, but nationwide figures on revolving debt have remained steady in the $840 billion to $845 billion range the past few years, he noted.
"I would say consumers aren't completely embracing the credit process as of yet," Riley said, citing the 2008 figure of more than $1 trillion in revolving debt as the high water mark for credit card use. The lines between credit and debit spending "crossed" in 2009 when the recession set in, with debit outpacing credit spending, Riley noted.
The SpendTrend report shows overall dollar volume growth for October at 6.8%, a "healthy uptick" from September's 5.3%, according to Mantripragada.
However, First Data did notice retail spending growth accelerated when the shutdown ended and even more shoppers regained confidence, he added.
"The spending growth momentum in October should provide retailers with an optimistic outlook heading into the holiday season," Mantripragada said.
But as it is with most any economic indicators, this holiday season does pose one problem for retailers and consumers ready to use their credit cards — Black Friday is a week later than last year.
"Retailers should expect holiday spending to be modestly stronger compared to last year, but there are fewer holiday shopping days, (because of a late Thanksgiving) which can subdue the growth," Mantripragada added.
Still, First Data has a positive outlook for card spending next year.
"The picture should brighten as the labor market continues to improve, the housing market continues to rebound and as income growth improves," Mantripragada said.
By next year, consumers will have completely adapted to the increase in the payroll tax and be benefiting from an expected 3% increase in personal income, he added.
However, many eyes in the financial services industry will be on the government funding, as the shutdown deal keeps the government operating only through Jan. 15 and lifts the debt ceiling through Feb. 7.
"Another government shutdown is not likely, but once again congressional action to raise the debt ceiling and to fund government operations is likely to go down to the wire and could impact consumer confidence," Mantripragada said.
