How consumer spending habits are changing, according to a Mastercard economist

Mastercard Chief U.S. Economist Michelle Meyer joins Yahoo Finance Live to break down the Mastercard travel report as well as how consumer spending habits are changing amid inflation.

Video transcript

- Well, the effects of record inflation are still being felt throughout the economy, but it has done little to hinder consumer spending on everything from clothing to international travel. But there have been some signs that things might be changing. Joining us to break down the latest economic trends, Mastercard Economics Institute chief economist Michelle Meyer. What a pleasure to see you, Michelle, such a nice Friday surprise. Well, it's not a surprise, I knew you were coming. But, anyway, it's good to see you.

And now that you're at Mastercard, you obviously have access to an enormous amount of data on what the consumer is doing. So just set it up for us because, obviously, we have had a lot of information from the retailers this week about what they're seeing from the consumer. How does that match up with what you guys are seeing?

MICHELLE MEYER: Yeah, exactly. And thanks, Julie, it's nice to be on with you this morning again. So, you know, it's been a really interesting ride for analyzing the consumer. When we're looking at our data and we're looking at our insights, it very much still shows that the consumer is out there spending.

Now, are they spending differently? Yes, absolutely. You are seeing some movement away from some big ticket goods towards more experience-based spending, particularly prioritizing travel-related spending. You're seeing, you know, some signs of shifts in that basket of spend as a result of these relative price adjustments.

And, importantly, you're seeing a change from last year, where the economy was so well-supported from stimulus. Consumers had a lot of cash on hand. They had this extraordinary tailwind of the reopening. And those dynamics are changing. It's more of a normalization in the economic environment, which means a moderation in activity even amongst that consumer. But I would say, when you take a step back and you look at those fundamentals of the consumer, it's still a pretty positive story, all things considered.

- How long do you believe that that will persist and much of that tethered to some of the higher prices that people are paying at the pump right now. But even, furthermore, as that starts to potentially come down in the future, then will you be watching for to see exactly how that gets back into some of the discretionary categories and which categories within discretionary potentially see that uptick?

MICHELLE MEYER: Well, look, I think the consumer is going to be making choices here and some of those will be because they're prioritizing certain types of activities, like experiences, and some of that will be because they don't-- you know, they're forced to pay some more on necessities. So think about grocery prices, think about gasoline, as you were just talking about. Clearly that has become a bigger share of the consumer wallet because prices are higher for those necessities, so that means the consumer has to think very carefully about what else they're going to spend on with a certain amount of income coming in.

They're going to use their savings, they're going to use credit cards. We are seeing evidence of that. But these decisions that the consumer has to make, I think, are going to be ongoing as we look into the medium term and as the economy finds this new Balance. So it's going to continue to be a really interesting adjustment for retailers and I think we're just in the beginning of it.

- So you guys just put out a new survey-- a new study that looked at travel spending, in particular. And you found by the end of April global leisure flight bookings were higher than 2019 levels by 25%. So those are bookings. Those-- that's travel that's not happening tomorrow, it's happening sometime probably this year.

MICHELLE MEYER: Correct.

- So what's remarkable to me about that is-- so people are spending on that, people are spending on groceries because they have to spend on groceries. So as you talk about these spending decisions, where do you think we are going to see the cutbacks. If it's not in travel, if it's not necessities, where is it?

MICHELLE MEYER: So, Julie, you had something super important. Thank you for flagging that, that research. It's been an extraordinary project that we took on at the Mastercard Economics institute to try to understand more deeply what's happening in the travel sector and using extraordinary data to do that.

But you hit on something super important, which is that we're measuring bookings, which means that the extent to which bookings are high right now, which they are and they're looking really quite strong in the US for both leisure and for corporate, that's an indication for future spending. Because once they actually take that trip, they're going to spend when they're on vacation or when they're traveling for work.

They're going to spend on cars, they're going to spend on restaurants, and other types of experiences. So there's still momentum in terms of consumer spending on those types of activities related to travel, related to getting back on the road, whether it's, again, for business or for pleasure. But, yes, what does that mean? Where do they have to shift things around?

So if you think about what they've spent quite a lot on over the last two years, it's been these, kind of, bigger ticket household items. And we've heard from a number of retailers this week about, you know, some inventory building up for things like kitchen appliances or TVs. So I think this-- the shift in the consumer wallet is going to continue to play out and I think travel is a new one area that is prioritized.

- Well, as the ticket price-- the end ticket price that anybody within that experience is tracking-- as that moves higher, the volume then, it would suggest, moves lower in terms of the amount of purchases there. What's the direct impact of that?

MICHELLE MEYER: So that's a really important point that's coming to this idea of, kind of, a shrinkflation for, if you want to use that term, where you're spending the same amount of money, but you're not getting as much in terms of quantity. So one thing to note when we're looking at the travel-related data, we're looking at bookings, we're looking at quantity, and quantity has remained very, very strong.

Now, of course, the inflation data has also been quite strong. If you look at what the BLS has reported, airfares over the last three months have increased by a record amount for consumers. So that total dollar amount they're spending when you take that high amount of quantity and the higher prices means that, yes, a lot of money is being funneled towards that type of travel-related spending.

At some point does that become more challenging? Do you see a shift in how people prioritize different types of travel? Presumably. It's all going to be about these types of decision-making as consumers work within their budget.

- Mastercard Economics Institute chief economist Michelle Meyer, thank you so much for taking the time here with us today and breaking down a bunch of these trends. Appreciate it.