Lambert here: Carpe diem….
By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street.
They’re the Big Spenders, they can move the needle. Millennials and Gen Z-ers are now the drivers of this growth.
American Express has long marketed its cards to the above-average-income segment of consumers – not just the high end, but the vast population of above-average income consumers. They’re the bigger spenders, and particularly spending on travel services and restaurants. Amex started the trend of premium cards decades ago with its Gold, Platinum, Business Platinum, etc., that all come with hefty annual fees and offer a variety of services. These cards are marketed to people who use them a lot and pay them off every month.
So this is not the lower-end of the income segment, but the above-average-income segment, the vast numbers of big spenders.
And Millennials are now with both feet in that segment, and Gen Z-ers are moving into it, and they have AmEx cards, and AmEx is marketing to them, and they’re applying for Amex cards, and turns out, they’re spending with their Amex cards, along with the rest of the Amex cardholders.
And at least these above-average-income consumers, those that can move the needle if they’re in the mood, are now in the mood.
This is what Amex said about its customers spending patterns in Q1 in its quarterly report yesterday:
- “Our first-quarter results reflect strong growth in Card Member spending and continued high engagement with our premium products.”
- Revenue grew 22% year-over-year, to a quarterly record
- Card Member spending rose 16% on an FX-adjusted basis.
- Travel and Entertainment spending soared 39% on an FX-adjusted basis.
- “In March, we saw a record level of reservations booked on our Resy restaurant platform.”
- Spending in its International Card Services segment jumped 29% on an FX-adjusted basis.
- Amex added 3.4 million new cards in Q1, “with U.S. Consumer Platinum and Gold, U.S. Business Platinum, and Delta co-brand account acquisitions all reaching record levels.”
- Millennial and Gen Z consumers continue “to fuel this growth” in new cards, accounting for over 60% of all new consumer account acquisitions in Q1.
- “Millennial and Gen Z customers also continued to be our fastest growing U.S. cohort in terms of spending, growing 28% from a year earlier.”
And not falling further behind.
“Our customers have been resilient thus far in the face of slower macroeconomic growth, elevated inflation and higher interest rates, with credit performance remaining best-in-class,” it said.
Total provision for credit losses in Q1 2023 was $1.1 billion, or 7.4% of revenues. As revenues have risen over the years, the credit losses have risen as well, but somewhat more slowly, and as a percent of revenues were somewhat better in Q1 2023 than during the Good Times before the pandemic:
Total provision for credit losses as a percent of “total revenues net of interest expense”:
- Q1 2023: 7.4%
- Q1 2019: 7.8%
- Q1 2018: 8.0%
- Q1 2017: 6.6%
So one of the reasons for the amazingly resilient consumer spending, even adjusted for inflation – “resilient” despite all the headwinds of asset price declines, inflation, layoff announcements, bank collapses, etc. – is that the above-average income segment, the big spenders, are now out there spending like drunken sailors, and much of it on services, particularly travels and restaurants.
And some of this spending is driven by Millennials and Gen Z-ers that have in huge numbers moved into their high-earning years and high-spending years, and they’re doing it.
Consumers in that segment at least are not “tapped out” or whatever, and they’re not falling behind on their cards anymore than they did during the Good Times before the pandemic.