Bank of America reported a 0.9% year-over-year increase in credit and debit card spending during August after July’s 0.4% decline. Bank of America Institute senior economist David Tinsley joins Alexandra Canal on Wealth! to discuss what the uptick in spending signals about the state of the US consumer. Tinsley notes that consumers are mainly spending on services, saying, “It’s mainly an experiences story. So when we dig into our data, what we’re seeing is tourism both within the US and externally, internationally, has been strong really over the last few months. Lots of action in Europe stimulated in part by Taylor Swift, the Olympics in Paris. But domestically, it’s been pretty good as well.” Despite some pressure in the unemployment rate, Tinsley explains that lower-income wages are up about 4% while higher-income wages are up about 1% year-over-year. While the labor market is cooling, he argues that the data shows “wind behind the sales of the consumer for now, at least.” He believes that this trend will likely continue and highlights the confidence in consumer spending as they have a bit more of a cash buffer than they did back in 2019. Tinsley sees potential weakness ahead when it comes to auto payments, noting that many consumers who financed their auto purchases will likely see high interest rates: “I think about 10% of people who pay their car loans are seeing a rise of about $400 or more relative to 2022. So if the economy does go south, those people might struggle a little bit in terms of financing the cash to keep those loan payments going, or alternatively, may have to pull back a bit on spending in order to make room for them.”
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