Americans spent more in May than before the pandemic, Visa says - but the spree is slowing down

Americans spent more in May than before the pandemic, Visa says - but the spree is slowing down
Riviera Village shopping area of Redondo Beach, California.Jay L. Clendenin/Getty Images
  • Visa's spending momentum index dipped in April but still shows activity surpassing pre-pandemic levels.
  • The year-over-year gauge is somewhat skewed by spending bouncing back in May 2020.
  • The index signals Americans are spending more than they did before the pandemic as they unwind pent-up demand.

Americans continued to unwind trillions of dollars in savings throughout May, albeit at a less explosive rate, Visa said Wednesday.

The Visa Spending Momentum Index reached 123.3 last month, according to a press release. The level suggests 59% of consumers spent more in May 2021 than in May 2020. Only 41% of Americans spent the same or less compared to one year ago. But that's not the really important comparison.
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The SMI also showed spending up from the pre-pandemic trend, lending credence to claims that pent-up demand is fueling a historic spending spree. The index's current level implies 52% of consumers spent more last month compared to May 2019.
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The gauge tracks spending momentum - as opposed to dollars spent - among Americans. Readings from 0 to 100 indicate fewer consumers spent more relative to the year-ago period. Prints between 100 and 200 signal more Americans boosted spending activity year-over-year.

The May print compares to an April reading of 136, suggesting the share of Americans spending more year-over-year shrank. Despite the month-over-month drop, "the breadth of consumer spending actually expanded" after accounting for last year's extraordinarily low readings, Visa said.

"May marks the one-year anniversary of the beginning of the consumer momentum recovery," Wayne Best, chief economist at Visa, said. "The SMI's strong reading again in May reflects the solid ongoing recovery taking place in the consumer sector."
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Several factors likely powered the April-to-May decline. For one, each reading is somewhat skewed by year-ago spending trends. Consumer spending cratered in March and April of last year as pandemic lockdowns forced business closures and forced Americans to stay home. Spending began to bounce back in May, making for a more difficult year-over-year comparison for the Tuesday read.

The April SMI data also tracks spending habits just weeks after Democrats' $1.9 trillion stimulus measure went into effect. The relief package included $1,400 relief payments and a $300-per-week expansion to unemployment benefits. Economists largely attributed April's increase in consumer spending to the stimulus support. Though spending momentum held strong throughout last month, strength was unevenly spread across the US. The SMI for the Midwest region lagged the broader reading, landing at 122.1 in May. The west saw the strongest consumer momentum with a print of 125.5. The outperformance was likely fueled by steady reopenings and efficient vaccine rollouts, Visa said.
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The SMI previews the May retail sales report slated for release on June 15. The measure is among the most closely-watched gauges of consumer activity and sits at record highs after stimulus and reopening powered a spring spending boom.

Retail sales were unchanged in April as the previous month's economic relief dried up and more lockdown restrictions were reversed. Vehicle sales outperformed, while sales excluding autos contracted slightly. With various supply bottlenecks plaguing the recovery, how spending trends in the coming months may determine just how much inflation will accelerate before the US settles into a new economic normal.

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