What Might Drive Visa’s Q2 Earnings Growth?

Key indicators

Economic growth, consumer spending, retail sales, and revolving credit growth are some of the key indicators that impact card companies’ performance. Let’s take a look at the recent changes in these indicators. According to data released on March 29, consumer spending rose 0.1% in January. Disposable personal income fell 0.2% in January and rose 0.2% in February. The consumer spending data for February are scheduled to be released on April 29.

What Might Drive Visa’s Q2 Earnings Growth?

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Higher consumer spending likely implies higher credit card and other consumer loans. Higher spending benefits card issuers and payment service providers like Visa (V) and MasterCard (MA). The higher number and value of card transactions means more revenues for payment networks.

Retail sales

The total retail sales rose 0.7% in January. The advance estimates for February retail sales show a 0.2% fall from January. Retail sales include sales at furniture and home furnishings, electronics, building material, food and beverages, health, gasoline, clothing, restaurants, and other stores. Since a substantial portion of the sales at stores is carried out by cards, more retail sales mean card transaction growth.

Revolving credit

According to data released on April 5, revolving consumer credit grew 0.3% in February and 0.2% in January. Revolving credit mainly includes credit card loans. Revolving credit accounts for roughly a quarter of the total consumer credit. Growth in card loans benefits card-issuing banks and payment networks like Visa, MasterCard, and Discover Financial Services (DFS).

GDP growth

The GDP growth is expected to fall to 2.4% in 2019 compared to 3.1% in 2018. Economic growth is associated with increased business activity and higher employment and wage levels. Economic growth spurs consumer spending and is positive for card companies.

Based on data available so far, the macro indicators were mainly positive, especially in January. If the indicators are positive throughout the quarter, they likely contributed to Visa’s results.