U.S. consumers are using their credit cards only for groceries and the drugstores as they attempt to cut back on their debt and increase savings amid the economic uncertainty caused by the coronavirus pandemic.
According to data released by Visa, one fifth of their U.S. payments volume is now in food and drugstores, including stores like Walmart, Costco and Target, an increase of approximately 20 percent in April.
It was the only spending category to see an increase last month as consumers cut back on their discretionary spending, boost their savings and pay off their credit cards.
Spending on travel was down 80 percent in April while retail, automotive, healthcare and education spending were all down by between 15 percent and 50 percent.
Data on credit card spending from visa showed a 20 percent increase in spending on groceries and at drugstores while travel spending was hit by an 80 percent decrease in April
The U.S. Consumer Price Index for April was released on Tuesday and showed a dip in prices caused by plummeting gasoline prices. The food sector saw the biggest price increase as consumers cut back on spending money on anything other than groceries and the drugstore
U.S. consumers continue to use their credit cards at the grocery store but have cut back on any other spending, according to Visa. Pictured is a grocery store in Brooklyn on Monday
Overall, credit card spending decreased by 31 percent through April 28.
Spending on telecom, utilities and insurance dipped sharply by 15 percent and the end of March but flattened out again last month.
The only other spending category to see a spike in April was gaming which increased by 200 percent.
‘The consumer that constitutes the beating heart of the real economy is preparing for a much longer slowdown than what policymakers are telling them,’ Joe Brusuelas, chief economist at consultancy RSM, told CNN.
While more than 33million Americans have filed a claim for unemployment benefit since the shutdowns began in mid-March, even those still in a job are spending with caution as fears rise that they could be unemployed in the next few months.
‘Consumers are very cautious,’ said Russell Price, chief economist at Ameriprise Financial.
‘We’re right in the middle of the storm.’
According to a New York Federal Reserve Survey released Monday, 21 percent of Americans believe they could lose their job in the next 12 months.
And only 47 percent see it as likely that they could find another job again in the next three months, with the survey marking record lows in the income U.S households predict they will earn this year.
‘We know that Covid has not gone away,’ Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, told CNN.
‘That is going to keep in place an element of uncertainty and fear and hold back consumers’ ability or desire to spend.’
Instead of spending, consumers have been building up their cash reserves as the U.S. savings rate climbed from 8 percent in February to 13.1 percent in March.
This marked the highest savings rate since November 1981 and is expected to be higher still once statistics are released for April.
As well as being slower to take out their credit cards, consumers are cutting back on the debt they’d already amassed.
Typically the most expensive type of borrowing, an earlier Federal Reserve report revealed that revolving credit outstanding collapsed in March at an annual rate of 31 percent.
As fear of losing jobs and income increased, so did fear of missing a future credit card minimum payment in the next three months to 16.2 percent.
Economists have warned that even with the lifting of coronavirus restrictions, spending will not immediately return to how it was before the shutdowns began in March
The increase in demand and continued consumer spending on stocking up on food as increased the price of meat in April. Overall prices in the U.S. have dropped, according to the Consumer Price Index for April which was released on Tuesday
‘People have seriously reined in their spending. You have to wonder when they will feel comfortable splurging,’ said Booth.
The widespread business shutdowns, reduced travel and shrunken consumer spending that the virus has caused have likely sent the U.S. economy into a severe recession.
Consumer spending in the U.S. accounts for around two-thirds of the GDP, however, spelling disaster if the reduced spending trend continues.
Economists are also warning that even the lifting of the shelter-in-place orders will not automatically result a return to normal spending patterns.
‘Even if you are a multimillionaire, you’re going to be much more reluctant to go to restaurants, baseball games and travel on airplanes,’ Price said.
The drastic changes in spending and the recent drop in economic activity is also exerting a powerful downward force on prices throughout the economy, with food at home among the only sectors that is seeing a price increase.
According the Consumer Price Index report released Tuesday, April had the steepest month-to-month fall in U.S. consumer prices since the 2008 financial crisis – a 0.8 percent drop that was driven by a plunge in gasoline prices.
And excluding the normally volatile categories of food and energy, so-called core prices tumbled 0.4 percent last month, the Labor Department said.
That was the sharpest such drop on records dating to 1957.
The absence of any inflation pressures has given the Federal Reserve leeway to keep interest rates ultra-low as it seeks to help restart the economy.
But Tuesday’s report raised the prospect of deflation, a prolonged drop in prices and wages that typically makes people and companies reluctant to spend and can prolong a recession.
Not since the Great Depression of the 1930s has deflation posed a serious economic threat in the United States.
‘If deflation becomes embedded in the economy, it can be difficult to uproot,’ said Gus Faucher, chief economist at PNC Financial Services.
‘Aggressive Fed actions can help prevent deflation from taking hold, supporting a stronger economy over the longer run.’
Even before the pandemic erupted, oil prices had been sinking to record lows, but the viral outbreak compounded the drop.
Last month, gasoline prices plunged by more than 20 percent. Clothing prices, airline fares and hotel and motel room charges all fell sharply, too.
Food at home is one of the only areas where prices are now being pushed higher, posting its largest monthly increase since February 1974.
The April price index for meats, poultry, fish and eggs increased 4.3 percent from a month earlier as supply chain have been hit because of coronavirus outbreaks in production factories.