Random stranger, you had me at travel. Travel demand is up despite raging war and inflation, but now it faces its next test: a looming recession…

US travel spending is strong… for now

American Express (NYSE:AXP) — the second-largest credit card (CC) issuer by transaction volume, is benefiting from a surge in travel.

Last week, Amex reported its first-quarter earnings with a 30% jump in network purchases — beating analyst estimates.

• Spending up: Total card spending grew 35%, goods & services spending grew 21%, but travel grew the most at 121% compared to the same period last year.
• Travel’s back: Travel and entertainment spending on Amex cards have finally recovered to 2019 levels — but corporate and international travel have yet to recover.

The strength in CC spending is seen across the board. In recent weeks, banks reported strong CC spending — with JPMorgan reporting card usage up 29%, Citigroup up 23% and Wells Fargo up 33%.

Despite the substantial increase, there’s something off with what the CC data and consumer sentiment tell us.

Consumers giving mixed signals

In recent weeks, analysts raised recession odds within the next two years. Surveys show consumers pulling back spending — worried over inflation and rising interest rates.

Higher borrowing means more spending — but here’s where that could become a problem…

• Problem: Falling consumer confidence signals that consumers are borrowing to maintain living standards (FT).
• Stat: 12% of people use credit cards to cope with higher prices— per a survey by the Office for National Statistics.

If consumers fail to pay back their loans, the economy could feel the pain. Borrowers are paying balances slower, with big banks seeing loan balances rising.

But so far, delinquencies are still below pre-pandemic levels with JPMorgan’s CEO seeing the amount it doesn’t expect to collect being “extraordinarily good” and “way better than they should be” (WSJ).

Investors: Amex the odd one out

AXP

— up 9% in 2022 — has held up better than the S&P 500, down 10%. Its stock has also outperformed the broad market over the past 5 years.

• Outcast: Amex has outperformed other major card stocks like Capital One, Visa and Mastercard — all down for the year.
• Caution: JPMorgan downgraded American Express — saying its strength has already been priced in.

A recession could be the tide that sinks all ships, and if travel demand were to fall,AXP

could find its line the first to be cut.