Updates - Macro Trend

US Consumer Spending Ticks Up Amid Strong Wages, BofA Says

Mackenzie Hawkins
BloombergFebruary 10, 2023

Card spending rose 5.1% in January from a year earlier
Households benefit from minimum wage, Social Security boosts

Consumer spending ticked up at the start of the 2023 in the US, reversing declines late last year and suggesting that even lower-income families have some cash buffers to fall back on, according to a Bank of America Institute report.

Bank of America credit- and debit-card spending rose 1.7% in January from December, making it a 5.1% jump from a year earlier.

The robust annual gain reflects in part the negative impact from the Omicron variant back in January 2022, according to the report. But it also suggests that consumption was bolstered by an increase in Social Security benefits and the minimum wage in some states, as well as the surprisingly robust labor market. Services such as airlines and restaurants in particular saw a boost.

The data add to evidence that a pullback in late 2022 — which had economists worried that a recession was looming — may have been short-lived. Once again, the American consumer proved more resilient than expected.

One explanation for the strong January, Bank of America said, is that people may have been holding back from spending during the holiday season to take advantage of post-Christmas sales. Daily Bank of America card spending saw a “meaningful acceleration” in year-over-year growth in the weeks following the holiday, the report shows.

There were also policy factors at play: More than 20 states increased their minimum wages at the start of the year, providing a boon to lower-income families, and the annual increase in Social Security benefits for retirees — which is tied to inflation — was the biggest in over four decades.

Still, lower-income groups remain the most impacted by inflation, Bank of America said, as food and shelter costs remain significantly elevated. Card spending among households making less than $50,000 annually increased by just 0.9% from a year earlier, while households making more than $125,000 saw a 2.4% jump.

The savings buffer many households built from a combination of federal stimulus and reduced consumption during the pandemic shutdowns continues to dwindle, with the lowest-income group seeing the steepest drawdown. But deposits remain above 2019 across income levels.

“While lower-income households are feeling stronger headwinds, it seems unlikely that a ‘tipping point’ in their spending will be reached in the near term,” the report said. “This is because consumers continue to have elevated savings, even adjusting for inflation, suggesting they have not yet reached their financial limits.”

February 10, 2023

Updates - Macro Trend

US Consumer Spending Ticks Up Amid Strong Wages, BofA Says

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