Bank of America (BofA) recently released new data indicating a 0.3% decrease in spending on its credit cards for the week ending September 23, compared to the same period last year. This downward trend in spending on BofA credit cards has persisted for several weeks, particularly when excluding auto and gas purchases from the equation.
Shruti Mishra, a renowned economist at BofA, highlighted this trend in a research note published on Thursday. According to Mishra, “After a solid summer, spending appears to have decelerated post Labor Day.” Furthermore, her team pointed out that “Excluding gas and electronics, most other categories have slowed in the last month, especially the discretionary ones,” such as furniture.
The recent increase in gas prices likely contributed to the rise in spending on fuel. Additionally, the launch of the Apple iPhone 15 on September 22 coincided with a surge in online electronics purchases, marking the strongest performance in approximately two weeks.
However, this sluggish data from Bank of America follows a summer characterized by unexpectedly robust consumer spending, which fueled faster economic growth than many had anticipated. Federal Reserve chair Jerome Powell has cited this as a key factor, alongside inflation concerns, that could lead the Fed to consider interest rate hikes.
Nevertheless, numerous economists have expressed the view that consumers are beginning to exercise restraint, signaling an impending slowdown. Recent data released on Thursday reinforces this sentiment, revealing that personal consumption growth in the second quarter was revised down from 1.7% to 0.8%.
Michael Pearce, the lead US economist at Oxford Economics, commented on this downward revision, suggesting that it indicates the consumer “is less resilient than previously imagined.” Pearce further stated in a research note that he anticipates “a weakening labor market and mounting headwinds to disposable incomes will drive a sharper slowdown in consumption and the broader economy over the rest of the year.”
EY’s chief economist, Greg Daco, referred to the challenges faced by consumers as a “quadruple threat.” Daco highlighted the potential negative impact on economic growth posed by a looming government shutdown and an ongoing strike by the United Auto Workers. Additionally, rising oil prices and the resumption of student loan payments are expected to put pressure on consumer spending.
However, Daco emphasized that the current strength of the labor market, including the highest labor force participation since the onset of the pandemic, could mitigate the expected consumer slowdown. He noted that “Consumers are still willing to spend,” albeit with increased prudence. Daco cautioned that a rapid deterioration in labor market conditions could lead to dire consequences and an accelerated consumer retrenchment.
In summary, Bank of America’s recent data suggests a decline in credit card spending, particularly in discretionary categories, signaling a potential slowdown in consumer spending. Economists are closely monitoring various factors, including labor market conditions, to gauge the extent of this slowdown and its implications for the broader economy.
In conclusion, the recent decline in spending on BofA credit cards raises important questions about the future trajectory of consumer behavior and its potential implications for the broader economy.
Source: Yahoo Finance
