Visa Index Shows Hot July Discretionary Consumer Spending

People are still spending money on non-essentials, with Visa’s U.S. Spending Momentum Index (SMI) up 0.8 points over June to reach 112.5. When the SMI exceeds 100, that signals that consumer spending is growing year over year. 

“Our first read on third-quarter consumer spending is signaling another solid start to the quarter,” Visa Chief Economist Wayne Best said in a press release on Wednesday (Aug. 11). 

“The elevated readings from the discretionary spending SMI imply that 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,” Best added.

See also: Visa: 59 Pct. Of Consumers Spending More Than In 2020

Consumer spending is tracked by Visa using multiple sub-indexes that offer a snapshot of how labor market trends are impacting consumer spending. For example, the discretionary SMI index groups the spending categories that are most affected by changes in household income. The non-discretionary SMI index is comprised of categories that are more fixed in nature.

Restaurant meals are in a unique category because they can be grouped either way — discretionary or non-discretionary. Vehicle gas purchases are also a hybrid spend, as they are discretionary for vacation travel. 

See also: US Consumer Confidence Stays Strong In July

The difference between discretionary SMI and non-discretionary SMI can paint an economic picture of how the strength of the labor market is impacting consumer spending, according to the press release. Drilling down into Visa’s SMI, July’s discretionary SMI was 107.9 while non-discretionary SMI registered 100.1. 

During the majority of 2020, non-discretionary spending was greater than discretionary spending due to the pandemic. This year sparked a change that began in March as the COVID-19 infection rate started to go down and vaccinations became available. Since that point, discretionary spending has been consistently higher.

SMI for the Midwest is still behind the rest of the country, with a July index of 111.0. The Northeast had a reading of 111.5, while the West remained on top with 114.8. The South experienced the biggest increase, up 2.7 points to 113.4.