Spending momentum rebounds in February, fueled by older Americans

Consumer spending resumed its robust pace of expansion in February amid declining COVID-19 case counts.

The Visa U.S. Spending Momentum Index (SMI) was 109.3 in February (seasonally adjusted), up from 102.4 in January. (When the Visa SMI rises above 100, the consumer spending momentum is strengthening and when it falls below 100, the spending momentum is weakening as fewer consumers are spending more relative to the previous year.)

Consumer spending momentum gained strength across all age groups, helping to reverse a three-month slide. But the growth was fastest in U.S. consumers over the age of 65, helping to close a gap that had opened between that group and younger U.S. consumers (aged 25-44) during the pandemic.

Spending momentum by older U.S. consumers lagged an average of 9.1 index points from March 2020 through January 2022, and reached as high as 17.2 points in November 2020. In February 2022, the gap narrowed to 3.2 points, which brings it closer to pre-pandemic levels.

By category, the SMI for discretionary purchases rose 4.1 points from the previous month to 104.7. The SMI for non-discretionary purchases rose 4.5 points to 101.9, signaling a positive acceleration in spending momentum relative to this time last year.

On a regional basis, the SMI rose for all four regions of the country relative to last month, signaling a geographically broad-based acceleration in spending momentum on a year-over-year basis. The SMI for the South posted the strongest gain, rising 8.9 points to 110.4, followed by the Northeast with a rise of 7.3 points to 109.3.

The Midwest (+5.6) and West (+2.9) also posted increases for the month. The stronger acceleration in SMIs for the South and Northeast regions marks a reversal of the deceleration in spending momentum for these areas last month, suggesting that both virus cases and severe winter weather played a role in reducing spending momentum last month.

“We have been surprised by the resiliency of U.S. consumers through the ongoing uncertainty of the pandemic and persistent elevated inflation,” said Wayne Best, chief economist, Visa. “We will continue to watch closely how inflation affects consumer spending as the year progresses.”

Rising energy and food prices helped push inflation to a four-decade-high of 7.9% in February, according to just-released data. Month-over-month, inflation rose 0.8%.

[Read More: Online inflation hits record high; apparel has highest rise]

The Visa SMI is an economic indicator of the health of consumer spending. The SMI provides insight into what drives upturns and downturns in spending by measuring the breadth of the momentum supporting these trends.

The Visa SMI is based on a sample of aggregated, depersonalized VisaNet data. Visa adjusts this data through proprietary methods to exclude factors that do not reflect spending momentum. The resulting sample data is then aggregated using a diffusion index framework where index values are scored from 0 to 200. When the Visa SMI rises above 100, the consumer spending momentum is strengthening and when it falls below 100, the spending momentum is weakening as fewer consumers are spending more relative to the previous year. The index is adjusted for day of week, month, holidays, and broad annual trends, and these seasonal adjustments are subject to revision each year.

The Visa SMI does not take into account the volume of payments; nor does it rely on all Visa-branded credentials, and therefore does not reflect Visa operational or financial performance. It is intended for informational purposes only and is offered on an “as is” basis without any warranties of any kind, express or implied. Each SMI report is as of the publication date.