The U.S. economy has been battered this year by soaring U.S. inflation, fluctuating stock markets that have turned downward and geopolitical tensions stemming from Russia’s invasion of Ukraine, which sparked higher fuel prices and worsened supply chain logjams. With the U.S. gross domestic product output shrinking in the first two quarters of the year, all of the tumult has sparked worries over whether the U.S. is headed for a recession this year.

For the four major card companies, which keep tabs on consumer spending trends, the macroeconomic issues were a hot topic of discussion during earnings conference calls with analysts for the quarter that ended on June 30. As the Federal Reserve tries to curb inflation by raising interest rates and economic hardship forces a growing number of companies to cut employees, here’s what executives at Visa, Mastercard, American Express and Discover said they’re seeing and monitoring in the economy.

At Visa, the largest U.S. card network company, the quarterly results showed little hint of an economic slowdown.

“Relative to 2019 levels, growth has been stable or improving in overall domestic payment volume, credit, debit, card-present and card-not-present volumes,” Visa CEO Al Kelly said during his company’s fiscal third-quarter call. “And this has been the case for most of 2022, with no indication of any slowdown, including in more recent weeks. In cross-border (travel), of course, the recovery has continued to strengthen. While growth has been stable in aggregate, there have been shifts under the surface that continue to demonstrate the momentum of the recovery.”

For Visa, that was true with respect to spending by wealthy and lower-income consumers alike. “The affluent spender continued to recover, particularly in the areas of restaurants, travel and entertainment,” Kelly said. “At the same time, non-affluent spend remained relatively resilient…based on our numbers, we haven't seen any evidence of (the) consumer pulling back spending in our markets.”

With respect to inflation, Visa’s executives avoided taking on the role of forecasters, but didn’t see any worrying signs of its impact. “It's just too early to draw any definitive conclusion,” Kelly said. “Looking ahead, we'll continue to monitor the potential impact of inflation to ticket sizes, transaction counts, as well as volumes, across spend categories.”

Travel demand, in particular, boded well for the company’s results. “Cross-border travel has come back very, very strongly and quicker than what we thought,” Kelly said, despite Asia remaining a weak spot. “Q3 was the first quarter in which spend on business travel surpassed 2019 levels,” Kelly said. “I don't see people being deterred even by higher costs of airline tickets,” he added.

As for how Visa would weather any downturn, Kelly said the company was better positioned than in the past. “We're much stronger in debit, which tends to be the vehicle, the card of choice for people in a slowdown period,” he said. “We're stronger in everyday spend categories. We're stronger in e-commerce. We’ve benefited from this acceleration in cash digitization that happened during the (COVID-19) pandemic.”

As the U.S. deals with inflation, geopolitical tensions and supply chain issues, Mastercard CEO Michael Miebach said the Purchase, New York-based card network company is closely monitoring the macroeconomic situation and watching to see how fiscal and monetary policy impacts consumer spending. 

For now, the company is encouraged that “unemployment rates remain low, wages are rising and consumer savings levels remain high,” Miebach said. 

Mastercard is not seeing signs of a recession currently, with “generally resilient consumer spending for the time being,” Miebach said. When asked about comparisons to the Great Recession, he said it’s “a very different scenario.” 

“We are not having a crisis around unemployment, we are having high consumer spending levels, so we don’t have an asset bubble that looks anything similar to what we were seeing at that time,” Miebach said.

Chief Financial Officer Sachin Mehra did note, though, that lower-income consumers in the U.S. are showing “a declining trend” in spending growth rates, whereas their spending growth among their affluent counterparts remains healthy.

A moderate level of inflation absent a spike in unemployment “is generally net a positive thing for our business,” said Chief Financial Officer Jeff Campbell. Inflation tends to be a “modest contributor” to the New York-based company’s volume growth, CEO Steve Squeri noted.

Although Amex has “never really been tied to” stock market fluctuations, the company has seen a correlation between unemployment and customers’ ability to pay their bills, Squeri said. “That’s potentially an issue down the road,” he added.

While there have been some layoffs and talk of a slowdown in hiring, “it’s not broad based and it’s not broad scale,” Squeri asserted. “You would have to see a huge credit crunch driven by unemployment for this cohort to be hit,” he said of Amex’s more affluent customer base.

Discover executives noted high inflation hasn’t materially curbed consumer spending, but depletion of savings and worsening sentiment could change that. 

The Riverwoods, Illinois-based card company has noticed some level of substitution or decrease in consumption with gas, in light of high fuel prices, said Chief Financial Officer John Greene. In other spending categories, there’s “nothing discernable at this point,” although he expects “consumers are going to make some choices and substitutions, or decrease in consumption will likely happen” in the second half of the year.

CEO Roger Hochschild called it an “increasingly fluid” macroeconomic environment. The external factors Discover monitors most closely are the job market and the unemployment rate, he said.

“Inflation unto itself is not correlated to loan losses based on all the historical data we’ve looked at,” Greene said. “Typically, it would be unemployment, or changes in employment levels overall.” 

As the Federal Reserve tries to tamp down inflation, “it’s going to be quite a period of time before the job market is directly impacted in a significant way,” Greene said. Unemployment sits at about 3.5% currently, and “we’re going to keep an eye [on it] and see if there’s any material changes on that,” he said.

By Caitlin Mullen , Lynne Marek on July 29, 2022
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