Consumer spending is continuing steadily upward, says BofA’s Liz Everett Krisberg

Key Concepts

• Consumer Spending Trends: Analysis of consumer expenditure patterns, distinguishing between services, gas, and retail.
• Data Bifurcation: The divergence in spending and wage growth between higher and lower-income households.
• Bank of America Institute Data: Proprietary transaction data from approximately 70 million consumers, offering a near real-time view of economic activity.
• NRF Data: National Retail Federation data, often based on surveys, which may differ from transaction-based data.
• Labor Market Fatigue: Signs of a slowdown in employment growth and overall labor market activity.
• Wage Growth: Increases in earnings, analyzed across different income brackets.
• Wealth Effects: The impact of rising asset values (e.g., stock market, housing) on consumer spending, particularly for higher-income individuals.
• Discretionary Spending: Non-essential consumer spending, often influenced by economic confidence and wealth.

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Consumer Spending: Bank of America Institute Data vs. NRF Data

Liz Everett, Head of Bank of America Institute, presented data indicating a steady upward trend in consumer spending, both on a year-over-year and month-over-month basis. This finding contrasts with NRF (National Retail Federation) data, which suggested a consumer slowdown in September. The Bank of America data showed that the overall spending growth was primarily driven by increases in services and gasoline expenditures. In contrast, retail spending actually saw a slight decrease of 0.2%.

The methodology employed by Bank of America Institute is distinct: it analyzes actual transaction data from nearly 70 million consumers in close to real-time, rather than relying on surveys. This direct observation of consumer behavior provides a granular view, potentially explaining discrepancies with survey-based data like NRF's, which may or may not include services and gas in its retail figures.

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Significant Bifurcation in Spending by Income Level

A critical insight from the Bank of America data is the pronounced bifurcation in spending patterns between higher and lower-income households, described as "A Tale of Two Cities." While all income groups increased their spending, the growth rates were significantly different:

• Lower-income households: Increased spending by 0.6% in September, a notable improvement from being flat in mid-summer.
• Higher-income households: Increased spending by 2.6%, which is more than four times higher than the growth seen in lower-income households.

This disparity highlights a widening gap in economic comfort and spending capacity across different income brackets.

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Representativeness of Bank of America Data

While acknowledging that their data does not capture all of America (e.g., the unbanked population) and has a geographic bias, the Bank of America Institute asserts that its sample of approximately 70 million consumers is "very, very broad" and "still very representative" of the overall American economy due to its sheer size.

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Labor Market Fatigue and Divergent Wage Growth

The Bank of America Institute's analysis extends beyond spending to the labor market, revealing signs of fatigue and a slowdown.

• Slowing Employment Growth: The number of households receiving paychecks, an estimate for payrolls, increased by only 0.5% in September. This marks a significant deceleration compared to 1.7% at the beginning of the year and nearly 4% two years ago, indicating a slower pace of job creation.
• Divergent Wage Growth: For employed households, wages are growing, but this growth is also bifurcated by income level:
  • Higher-income household wage growth: Increased by 4% in September, marking the biggest increase in four years and the fifth consecutive month of acceleration for this group.
  • Lower-income household wage growth: Ticked up by 1.4%, a level closer to what has been observed since the pandemic. This rate is noted as likely not keeping pace with inflation.

This disparity in wage growth is presented as a key factor explaining the observed bifurcation in consumer spending, as higher wage growth provides greater comfort for increased expenditure.

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Supporting Factors for Higher Income Spending: Wealth Effects

The transcript emphasizes that the spending growth among higher-income households is not solely driven by wage increases but also significantly supported by wealth effects.

• Stock Market: The stock market reaching new highs contributes to increased wealth for those with investments.
• Housing: Higher-income individuals often benefit more from rising housing values.

These wealth effects particularly support discretionary spending among higher-income groups, indicating that non-essential purchases are tracking well with market performance.

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Implications for Economic Reporting and Government Data Gaps

The Bank of America Institute's data is deemed particularly important in times when government economic reports might be delayed or missed, such as a missed jobs report. Based on their data, the Institute estimated that September payrolls would have shown an increase of 0.5%, indicating a slower and more fatigued labor market. The overall narrative conveyed is that while the labor market continues to grow, it does so at a slower pace, and broad consumer spending is increasingly driven by higher-income segments.

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Synthesis/Conclusion

The Bank of America Institute's data paints a nuanced picture of the U.S. economy, highlighting continued consumer spending growth, but with a critical distinction: this growth is increasingly driven by higher-income households, supported by strong wage growth and wealth effects (stock market, housing). Conversely, lower-income households are seeing slower wage growth that likely isn't keeping pace with inflation, leading to a more modest increase in their spending. The labor market, while still growing, shows clear signs of fatigue and a decelerating pace of employment growth. This "Tale of Two Cities" in economic performance underscores the importance of granular, real-time transaction data for understanding the underlying dynamics of consumer behavior and labor market health, especially when traditional government reports may be unavailable or less timely.