As Americans become more comfortable with Covid-19’s transition from pandemic to endemic, two of our key expectations for this year are that consumer spending will remain robust and that consumers will increasingly shift their spending patterns away from goods toward services and experiences (such as travel, restaurants and other out-in-the-world activities).
New research1 from Bank of America—the nation’s second2 largest bank by assets—on its customers shows momentum behind this outlook: Credit and debit card spending was up 11% in March (on a year-over-year basis).
Additionally:
- Combined ACH (Automated Clearing House) and Wire payments—which tend to reflect spending on big-ticket items and credit card repayments–increased by 12% during that YOY period, suggesting broad spending growth.
- Travel and leisure spending has rebounded, with airline spending up 91% YOY and restaurant spending up 17%.
- The report concluded that “Spending on leisure appears to be normalizing, after a long period during the pandemic when spending on goods was favored over that on services.”
Another positive sign: Consumer spending growth has occurred across various income groups—with card spending by households that make less than $50,000 per year up 4% YOY (and up 30.4% versus March 2019), and spending by households making more than $125,000 annually increasing 11.8% YOY (and up 22.5% from March 2019).
And while higher prices—particularly food and gas—are creating economic headwinds, consumers’ cash savings (median household deposit balances in Bank of America accounts) remain higher than they were prior to the start of the pandemic. This creates somewhat of a cash “buffer” that, in the short run, may help support continued consumer spending during the current high inflation environment.
The upshot: Consumers, who as a group represent around two-thirds of U.S. economic activity, are indeed pushing the economy forward and broadening out their spending habits—and the data reveals that they appear to be in good shape to continue doing so for some time.
1https://business.bofa.com/content/dam/flagship/bank-of-america-institute/economic-insights/consumer-checkpoint-april-2022.pdf
2https://www.bankrate.com/banking/biggest-banks-in-america/
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.
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