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Visa Sees U.S. Spending Momentum Rise in July

August 18, 2021

Visa released the July reading of the U.S. Spending Momentum Index (SMI), which reached 112.5, up 0.8 points from the June reading of 111.7. A reading above 100 suggests consumer spending continues to expand on a year-over-year basis. 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.

Visa has created additional sub-indexes to better track how labor market trends are impacting consumer spending. Categories of spending more sensitive to income changes are grouped in a discretionary SMI index, and those that are less sensitive in a non-discretionary SMI index. Restaurants are treated separately as dining out can be either discretionary or non-discretionary depending on the services offered. Similarly, the sensitivity of spending at gas stations differs by season, and is more discretionary in nature during the summer travel season.

The gap between the discretionary SMI and the non-discretionary SMI can indicate how the strength of the labor market is influencing spending. The discretionary SMI reading for July was 107.9 while the non-discretionary SMI registered 100.1. According to the SMI, throughout most of last year, non-discretionary spending outperformed discretionary spending as consumers stocked up on groceries and other household essentials. Beginning in March of this year, coinciding with a sharp rise in vaccinations, the discretionary spending SMI readings have been consistently higher than non-discretionary, implying a pickup in purchases that are more sensitive to changes in income or employment, such as dining out, entertainment, and travel.

“Our first read on third quarter consumer spending is signaling another solid start to the quarter,” said Wayne Best, Visa’s Chief Economist. “The elevated readings from the discretionary spending SMI imply consumers’ confidence in economic conditions is adding momentum to spending in categories that were especially hard-hit by the pandemic. This is a very positive sign for the recovery—as long as it keeps up.”

On a regional basis, the SMI for the Midwest continued to lag behind other parts of the country, with an SMI reading of 111.0 in July followed by the Northeast at 111.5. The West again had the highest regional SMI reading at 114.8, while the South saw the largest acceleration from the previous month, rising 2.7 points to 113.4.

Previously only available to Visa clients, Visa is now publishing components of the SMI on a monthly basis for the general public, in part to help track economic recovery progress. The SMI builds on Visa’s commitment to powering commerce by providing tools and insights that help to gauge consumers’ ability to spend and their overall participation in the economic recovery.

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