Earnings reported by American Express on Friday (July 19) show that consumers continue to spend money on experiences, especially dining out, and that the momentum is coming from younger generations who are using their cards more frequently.
Spending by millennial and Gen Z customers increased 13% year over year, according to executives.
Chief Financial Officer Christophe Le Cayec said on a conference call with analysts that the company saw spending growth in several areas, with spending on goods and services increasing 6% and travel and entertainment up 7%.
“Growth has slowed in some areas, [travel and entertainment] “Spending declined compared to the previous quarter, particularly in the air and lodging categories,” he said, but spending at restaurants “remained strong,” he said.
As for increased frequency of card usage, the company’s transaction volume in the June quarter increased 9% compared to the same period last year.
“Strong engagement” from young consumers
“We see that younger cardholders continue to show strong engagement, transacting on average 25% more than older customers,” Le Cayec said, adding that when it comes to categories like food and beverage, they transact twice as much.
Millennial and Gen Z consumers accounted for one-third of the $165 billion in U.S. consumer service billings, a measure that includes cardholder spending and cash advances.
Spending growth for small and medium-sized businesses, detailed in the supplemental financial results, was up 2% from a year ago. The international region saw double-digit growth in consumer spending, Le Cayec said.
“Lending growth in particular will continue to moderate by a few percentage points going into 2024, but we still expect double-digit growth by the end of the year,” the CFO said.
According to supplementary materials, reserves accounted for 2.8% of card loans, down slightly from the previous quarter.
The 30-day delinquency rate was 1.2% of total loans, down from 1.3% in the first quarter and down from 1.5% pre-pandemic. The net charge-off rate was steady at 2.1%.
Chief Executive Steve Squeri said spending was “heavily driven” by younger consumers and that “even in a slower economic growth environment, our credit statistics remain strong as consumers, when they decide to cut back on spending, cut back a little on discretionary spending but continue to pay their bills.”
Asked on the conference call about the trajectory of credit metrics, Le Cayec said they “will likely stabilize at roughly the same level as in the second quarter, i.e. around 2.1 percent,” as the outlook for consumer trends and delinquency rates improves.
Management expects revenue growth of 9% to 11% in 2024, unchanged from its previous outlook. Shares were down 4% at the open on Friday.
More information: American Express, Amex, Christophe Le Caillec, consumer spending, credit cards, earnings, Gen Z, Generation Z, millennials, news, PYMNTS News, Steve Squeri, travel, travel spending
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