The report: Consumer Checkpoint, August 2024
Source: Bank of America Institute
Why we picked this report: The consumer continues to be the primary driver of the US economy and changes in consumer behavior may be the harbinger of (or the catalyst for) any pending US recession. Shifts in consumer behavior will also directly impact core banking activities, from deposits to lending. The report leverages internal BofA data in near real-time, with the potential of spotting trends earlier than many other public sources.
Executive Summary
Bank of America’s Consumer Checkpoint for August 2024 reveals a nuanced picture of consumer spending trends. While total card spending per household saw a slight year-over-year decline of 0.4% in July, services spending outpaced goods, with international travel remaining a highlight.
While the labor market shows signs of cooling, wage growth, particularly for lower- and middle-income households, continues to support consumer spending. And despite weaker nominal spending growth, consumers appear to be maintaining volume growth by becoming more price-sensitive, especially in categories like groceries and clothing.
This shift towards value-seeking behavior may be driven by gradually declining deposit balances, which, while still above pre-pandemic levels, are approaching their lowest post-pandemic point. The report also notes an increase in consumers moving funds to less-liquid investment accounts and a slight uptick in 401(k) hardship distributions, suggesting some emerging financial pressures for certain consumer segments.
Key Takeaways
- Services spending, especially in travel and leisure, shows stronger momentum than retail spending.
- Consumers are becoming more price-sensitive, with stronger spending growth in value-focused stores for groceries and clothing.
- Median deposit balances are declining but remain above inflation-adjusted pre-pandemic levels.
- There’s an increase in consumers moving funds to less-liquid investments such as certificates of deposit (CDs).d
What we liked about this report: A judicious, balanced analysis of complex factors that avoids the temptation to yell “fire”.
What we didn’t: Nonetheless, we wondered, “Isn’t it time to yell ‘fire’?”
Consumer Spending Trends: Navigating Economic Shifts
Bank of America’s latest Consumer Checkpoint for August 2024 presents a complex landscape of consumer spending behavior, revealing both resilience and adaptation in the face of economic changes. While overall spending shows slight contraction, a deeper analysis uncovers nuanced trends that paint a picture of consumers strategically adjusting their habits to maintain purchasing power.
Spending patterns are leading the way: Services Lead, Retail Lags July 2024 saw a marginal improvement in consumer spending, with Bank of America aggregated credit and debit card spending per household declining 0.4% year-over-year (YoY), a slight uptick from the 0.5% YoY drop in June. On a seasonally adjusted basis, July’s total card spending per household rose 0.3% month-over-month (MoM), reversing June’s 0.1% MoM decline.
Consumers Are Spending More than Ever:
Services spending, including restaurants, is up about 20% compared to the 2019 average.
A key trend emerging from the data is the continued strength of services spending compared to retail. Services expenditure, including restaurants, rose 0.5% MoM on a seasonally adjusted basis, outpacing retail spending (excluding restaurants) which increased by 0.2%. Both categories remain significantly elevated, up around 20% or more compared to the 2019 average.
International travel remains a bright spot in consumer spending. The Paris Olympics and Taylor Swift concerts in Europe have driven significant increases in overseas expenditure. Bank of America data shows a 27% rise in spending in Paris and other Olympic cities from July 25th to August 4th compared to the same period in 2023. Similarly, cities hosting Taylor Swift’s Eras tour saw a 35% YoY increase in spending.
Labor market cooling but still supportive :The labor market shows signs of moderation, with the latest Bureau of Labor Statistics data reporting an increase of only 114,000 jobs in July 2024, less than half the 2023 average. The unemployment rate also rose to 4.3% from 4.1% in June. However, Bank of America’s internal deposit data doesn’t indicate a surge in joblessness, though there was a small rise in the YoY growth rate of households receiving unemployment income across all income cohorts in July.
Trends, Trends, Trends:
Total card spending per household decreased by 0.4% year-over-year in July 2024.
Despite the cooling labor market, wage growth remains a key support. Bank of America data on after-tax wages and salaries growth shows robust increases, particularly for lower- and middle-income households. Higher-income households are also seeing improved wage growth after near-stagnation for much of 2023. This continued wage growth is expected to underpin consumer spending in the near term, though any sustained weakening in the labor market could eventually impact wages and, consequently, spending.
Consumer are squeezing value from declining spending growth: An intriguing trend emerges when comparing the slowdown in total card spending growth per household with the decline in inflation. While spending growth has remained below CPI inflation since its peak, there’s evidence that consumers are managing to maintain volume growth in their purchases.
This is partly due to falling prices in many card-centric spending categories. Items like airfares, furniture, and apparel have seen year-over-year price decreases, allowing consumers to stretch their dollars further. The number of card transactions per household has shown fairly stable growth, hovering above 1% YoY through much of 2023 and the first quarter of 2024, though there are signs of a slight slowdown in recent months.
Importantly, consumers are increasingly seeking value in their purchases. Spending growth in value-focused stores for groceries and clothing is outpacing overall spending in these categories. This shift towards price sensitivity suggests that consumers are successfully maintaining volume growth in their spending, even as overall inflation declines.
Financial balances drift downward: The increasing price sensitivity among consumers may be driven by gradually declining deposit balances. Bank of America internal deposit data shows that while median deposit balances remain almost 40% above pre-pandemic levels and over 15 percentage points above inflation-adjusted 2019 levels, they have declined to near their lowest post-pandemic level.
These elevated deposit balances have allowed consumers to spend more of their income in recent years, supporting overall spending. The personal savings rate has been less than half of the pre-pandemic rate in recent years. As deposit balances gradually decline, households appear to be adjusting their spending habits to maintain their overall financial health.
It’s important to note that not all the drawdown in savings and checking balances has been spent. Some households are moving their money into less-liquid investment accounts. Bank of America internal data shows that July 2024 median balances per account for certificates of deposits (CDs) are up 25% YoY, building on the 70% YoY growth seen in the previous year. This shift suggests that some consumers are seeking higher returns on their savings in the current interest rate environment.
Retirement accounts provide another perspective on household savings. According to Bank of America’s 2024 Q2 Participant Pulse, the average 401(k) contribution rate remained stable at 6.5%, consistent with year-end 2023. However, there was a slight increase in 401(k) plan participants taking hardship distributions, rising to 0.67% in Q2 2024 from 0.52% in Q2 2023. While the overall percentage remains low, it could indicate building pressures for some consumer segments.
Resilience Amid Change: Opportunities for Banks
The August 2024 Consumer Checkpoint reveals a consumer landscape characterized by strategic adaptation. Despite cooling in the labor market and gradual declines in deposit balances, consumers are finding ways to maintain their purchasing power. The shift towards value-seeking behavior, particularly in essential categories like groceries and clothing, demonstrates a savvy approach to navigating economic changes.
For retail banking executives, these trends underscore the importance of offering diverse product ranges that cater to varying consumer needs. As customers become more price-sensitive and seek value, banks may need to adjust their offerings and messaging to align with this shift in consumer behavior. Additionally, the movement of funds to less-liquid investments like CDs presents opportunities for banks to enhance their savings and investment products.
Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.
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