(June 10, 2010) Consumer spending growth began to slow in April and May after a rebound during the first quarter, with general merchandise stores posting their lowest year-over-year dollar-volume growth, according to at least one major processor. Low-end consumers pulled back from spending, squeezed by an uneven economic recovery and high unemployment.

However, dollar volume growth increased for hotels, leisure, and travel as premium consumers began to increase travel and make vacation plans, according to Atlanta-based processor First Data Corp., which compiled data from a number of its processing platforms to measure activity on signature and PIN debit cards and credit cards.

“What we’re seeing is the significant growth in the first three months of the year started to slow when we look at April and May,” says Silvio Tavares, First Data senior vice president. “Total dollar volume is still higher then it was last year. However, the rate of growth appears to be slowing.”

Same-store dollar volume grew 9.2% in May, driven in part by higher gas prices, First Data reports. April marked the end of two consecutive months of double-digit growth. Excluding gas stations, dollar volume growth was 8.2%. (First Data's report reveals only percentage changes in transaction figures).

Transaction growth also slowed in May, with retailers posting only a 7.5% increase, the lowest growth rate this year. However, hotel transactions grew 10.1%, a substantial increase over April’s growth rate of 4.6% as people traveled for the Memorial Day Weekend.

“What we believe is the driver of that is the continued stubborn unemployment rate,” Tavares says. “Despite the fact we saw consecutive increases in dollar volume growth for the first three months of the year, we didn’t see a substantial reduction in unemployment. As a result, consumers have increased their spending but they weren’t really getting more income or new jobs.”

Dollar volume growth was weakest in the southern U.S. (7%), primarily due to extensive flooding in Tennessee and the Gulf oil spill, Tavares says. Dollar volume increases in other regions ranged between 9.1% and 11.7%. The impact of the oil spill might become even more severe in the south and may spread outside of the South, depending on whether the spill is contained, he says.

During May, building materials and garden equipment dollar volume grew only 9.1%, a decrease from April’s 13%, while furniture and home furnishing dollar volume grew 6%, a decline from April’s growth rate of 9.5%, First Data said.

Spending at general merchandise stores, including value retail stores, grew only 8.7% in May, down from April’s 12.4% growth rate. Transaction volume also declined to 10.2% from 11.7% in April. Spending growth in the hotels, leisure, and travel category showed the largest improvement in two years, with dollar volume up 11%, up from 5% in April. Hotel transaction growth was 10.1%, up from April’s rate of 4.6%.

Average ticket growth was up 0.7%, due mainly to increased gas prices, First Data says. Gas prices on average were 35 cents higher than in 2009. However, the average ticket in the travel category increased 4.9%, the highest growth rate in two years, as merchants raised prices in response to demand and limited capacity.

First Data also reported that PIN debit surpassed all other payment types in both transactions and dollar volume growth, which increased 13.8% and 11.3% respectively. Signature debit posted an 11% increase in transactions, while credit posted only a 3.3% increase in May.

Debit spending has outpaced credit spending since the beginning of 2009, Tavares says. “While credit has grown a little bit on a year-over-year basis, it’s still at a very depressed rate,” he says.

Meanwhile, Visa Inc. also reports that increases in U.S. debit card volume and transactions outstripped increases in credit card volume for the quarter ending March 31. Debit card volume rose 20.9% to $245 billion during the quarter, from $202 billion a year earlier, according to documents filed by Visa with the U.S. Securities and Exchange Commission. Debit transaction volume totaled 6.4 billion, up 18.5% from 5.4 billion in the year-ago period.

For U.S. credit cards, volume increased 3.4% to $182 billion during the quarter from $176 billion a year earlier. Credit transactions volume was flat at 2.1 billion.

Total U.S. payments volume rose 12.7% to $427 billion from $379 billion in the year-earlier period. Total transactions increased to 8.6 billion, up 14.6% from 7.5 billion in 2009.