People Have Stopped Spending Money On Credit Cards

The Federal Reserve raised interest rates again today, while suggesting merely that “some additional tightening” may be necessary – the markets betting on another 25 basis point increase, and even easing later in the year.

There wasn’t a bigger rate hike, and expectations for further hikes have eased, in the context of a banking crisis – where bank balance sheets have eroded with rising rates. Stuck with assets whose value has declined with rising rates, there have been questions over bank solvency. The Fed naturally says that the tools it has to shore up the banking system are separate from interest rates, but they have to say that.

We’re no longer facing 8% – 10% inflation, but probably still 4% – 5%. And it’s may be harder for the Fed to go the last mile.

However it may be that the banking crisis does the work for them – banks are likely to tighten up lending, which is contractionary. The odds of recession have grown, there’s no longer much talk of a soft landing (let alone no landing).

And consumers have already pulled back in the week since Silicon Valley Bank failed. We can see that from spending reported on Citibank credit cards:

This is relevant to rewards cards. If people aren’t spending that’ll hurt bank issuer revenue. It will affect the ability of customers to deliver spend towards acquisition bonuses. And it’s going to effect co-brand partners like airlines and hotels, since some of the most lucrative parts of their businesses is sale of miles to banks.

Indeed, if spending on Citibank cards in particular slows that may mean fewer elite frequent flyers at American Airlines now that status is no longer based primarily on flying. Even for those who earn the same status, less spending means fewer status qualifying Loyalty Points. Upgrade priority is ordered by Loyalty Points earned in the rolling prior 12 months within each status tier. You may face less competition for upgrades if you’re still earning your status and spending and flying as much.

A pause in aggressive card spend may on its own rein in inflation. On the other hand, just as some saw inflation itself as transitory, any pause in spend may be. It’s too early to say. But the dramatic drop in spend, suggesting that consumer consciousness was deeply affected by the recent bank scare.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. I’d be extremely skeptical of this data. The “bank crisis” doesn’t really affect many Americans. What DID affect them was the collapse of the stock market (nobody can make any money these days except from employment) and the crazy inflation — neither of which seemed to have much affect on spending coming out of the “YOLO effect” of the pandemic ending. The idea that consumers were suddenly frightened by trouble at a Silicon Valley bank for billionaires seems farfetched.

  2. Could also be people moving their spend off of AA cards after hitting status levels. Would be interesting to validate if this affected other issuers.

  3. Nope, the analysis is completely off.

    AA will adjust the number of points required for elite status and/or do promos to keep the number of elites within its target.

    It has always done so in the past and it will do this again in the future.

    However, less spending = less revenues for airlines = lower ability for AA to pay back debt. And that’s a big problem for AA.

  4. I’ve seen a lot of people ask in the last two weeks if they should keep their money in this or that bank. I don’t think normal consumers are going to stop or reduce spending as spending is tied to employment and the job market looks steady for the last 5 years. The people who suffered the most in the last year are those more invested in tech even if it’s QQQ. The people who won’t be spending as much are those who work in tech and fear being laid off. PayPal was near $300 a share in 2021 and now is $74. The good thing for the economy is most of the start up stocks are already down significantly and it didn’t affect the broader economy or indexes as much. Same thing with the big crypto decline and decimation of of all those crypto exchanges.

    We won’t know of this spending decline is for some random reason tied to the weather or etc. Maybe the interest rates are starting to hit certain people.

  5. The media is so quick to spout off how safe your money is in the bank. Not trusting them.

  6. Unfortunately I think we need a recession to slow down a lot of things. Most people are still out of control with spending. The free money under both parties has created a lot of gluttony. There are some people definitely hurting but a lot of people really abused the system. Housing is coming down in some areas but still high.

    If banks expect things to get tougher on the average person then it makes sense to get tougher with lending.

    I hear a lot of whining about mortgage rates but during a good chunk of my life anything 8% or lower was considered a good rate. People just have short memories. Also throw in a broken government that can never get a budget passed or even raise the debt ceiling and you could have some serious disasters on the horizon.

  7. I guess whales not buying simon and other pathward gift cards might have contributed to the drop…

  8. Has this site seen a drop in approved bank card applicants over earlier periods? Or are people applying for new bank cards as much as or maybe even more than before?

    There seems to be a pretty substantial increase in people even buying groceries under “buy now, pay later” schemes independent of credit/charge card use.

  9. @GUWonder not enough time has passed since SVB to have a good handle on secular changes in card application behavior (since so much depends on current offers, offers ending). And I haven’t seen data suggesting that there’s been a big shift in recent weeks to BNPL.

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