Today Visa publishes its regular Expenditure Index which shows that consumer spending reached its highest for two and a half years in May. But our latest data suggests things aren’t quite as rosy…
According to Visa, consumer expenditure grew by 1.3% year-on-year – the biggest annual increase seen since October 2010.
This is the third month in a row that Visa has identified a year-on-year consumer spending has increased. However, the Which? Spending Power Index tells a different story.
A gloomier picture of spending power
We track consumer spending power, or the amount households can buy with their income, taking into account changes to incomes and inflation. And after nine months of positive change, the last three months have shown a gloomier picture – a year-on-year decline in spending power. Stagnated incomes and the rising cost of living mean that most households find their money doesn’t stretch as far as it used to.
The Visa report shows that the strongest year-on-year increases in consumer spending are in the miscellaneous goods and services, followed by hotels and restaurants, transport and communications. On the other hand spending on health, food and drink, clothing, household goods and recreation were down since this time last year.
So, Visa’s report suggests people are spending more, but our data suggests people have less to spend month by month. This could lead to a problem – rather than people having more money to spend, people are actually likely to be spending beyond their means or using credit to get by.
How do people feel about spending?
Our Consumer Insight Tracker shows that, rather than a shift in orientation towards spending, a third of people cut back spending on essentials last month and just one in four say they are living comfortably on their income. Last month a quarter of people used their savings to cover their spending and almost half the population borrowed money.
There are some signs that confidence in the economy looks to be improving, with one in four saying they expect the economy to get better in the next year (up from 16% last year). But people’s attitudes towards the cost of living remain unchanged and nine in 10 people expect prices will continue to increase in the coming year.
So, how do you feel about your spending and are you more optimistic about the future? Has something given you increased confidence to spend?