Demand pulled forward on auto loan applications ahead of Trump tariffs: BofA's Liz Everett Krisberg

Key Concepts:

• Consumer spending trends
• Impact of tariffs on consumer behavior
• Durable goods spending
• Auto sales and vehicle loan applications
• Wage growth across income groups
• Inflation in essential services
• Consumer trading down
• Shifts in service spending
• Regional economic disparities

Consumer Spending in March and the Impact of Tariffs

• Overall Spending: Consumer spending increased by 1% in March, recovering from a drop in February.
• Tariff Anticipation: The key question is whether this increase was driven by consumers anticipating tariffs, particularly on durable goods.
• Durable Goods: Durable spending increased by 1.5% after declines in January and February. However, the ratio of high-value durables to total spending showed a mixed message.
• Auto Sales: Auto sales saw a significant increase.
• Vehicle Loan Applications: Following the announcement of tariffs on March 26th (effective April 2nd), applications for consumer vehicle loans surged by 23% in the subsequent six days. This indicates a direct impact of tariff anticipation on auto purchases.

First Quarter Earnings and Future Guidance

• The first quarter earnings are expected to be positive.
• Guidance from big banks will be crucial, especially considering the rapidly evolving economic situation.

Wage Growth Trends

• Overall Wage Growth: Wages continue to rise across all income groups.
• High-Income Wage Growth: After four months of accelerated growth, high-income wage growth pulled back by about 100 basis points, settling at 2.6%.
• Low-Income Wage Growth: Low-income wage growth is decelerating, dropping another 100 basis points to 1.4%. This is the lowest level in eight years (since April 2017).

Inflation and Consumer Behavior

• Gas Prices: Consumers are experiencing relief from lower gas prices.
• Essential Services: Inflation persists in essential services like rent, utilities, and insurance.
• Impact on Low-Income Consumers: A significantly higher percentage of after-tax income for lower-income households is allocated to these essential services.
• Trading Down: Consumers are trading down from premium to value grocers.
• Shifts in Service Spending: Restaurant spending, travel, tourism, and leisure spending are declining, as consumers shift towards necessities.

Regional Economic Disparities

• Spending Rebound: While there was a rebound in spending after February's decline, it is lagging behind other eastern cities and the rest of the U.S.
• Unemployment in VC: There was a 135% increase in households in VC receiving unemployment income, contributing to the slower spending growth in that region.

Conclusion

Consumer spending showed resilience in March, but there are signs of potential headwinds. The surge in auto sales driven by tariff anticipation may not be sustainable. Wage growth is slowing, particularly for lower-income individuals, while inflation in essential services remains a concern. Consumers are adjusting their spending habits, trading down and prioritizing necessities. Regional economic disparities are also evident. The coming months will be crucial in determining the long-term impact of these factors on the overall economy.