There Goes The US Consumer: Card Data Reveal First Drop In Household Spending In Two Years As Upper-Income Wages Tumble, Unemployment Benefits Soar

One of the bigger mysteries of the US economy is how is it possible that – if one believes the various government data collection agencies – the US consumer remains this strong this late into the business cycle (actually, one look at the recent near-record surge in credit card debt explains everything…

Luckily, every mystery eventually comes to an end, and even the seemingly invincible US consumer is starting to crack, first at the low-end (as we explained two months ago in “First Signs Of A Notable Low-Income Slowdown“) and now at the very top.

Recall, it was one month ago when we used the latest Bank of America card spending data to (correctly) predict that the first post bank crisis retail sales data would be ugly, well uglier than consensus had expected. However, while spending was clearly slowing down, it was mostly impacting the low-end of the middle class.

Not anymore: according to the most recent debit and credit card data published by the Bank of America Institute, the recent higher-income job market slowdown is also starting to impact spending. Yes: the upper-income cohort is finally starting to crack too.

Let’s take a closer look at the data.

According to the latest monthly Consumer Checkpoint report published by Bank of America (available to professional subs), after the moderation seen last month, there have been further signs of a slowdown in consumer spending in April. Bank of America aggregated credit and debit card spending per household slowed further to -1.2% year-over-year (YoY) in April, the first negative monthly YoY reading since February 2021.

Most noteworthy is a softening in spending on services to just +0.9% YoY. Until recently, services had been driving overall spending growth. The moderation last month, however, was broad based led by spending on airlines dropping by 4.5 percentage points to +0.9% YoY in April (Exhibit 2

The silver lining is that despite the weak YoY growth rate, sequentially, total spending actually increased by 0.3% month-over-month (MoM) seasonally-adjusted (SA). Two factors to keep in mind are that spending was strong last April, an unfavorable base effect for this year’s YoY comparison, and the timing of Easter may also have been impactful. Easter Sunday was April 9th this year, compared to April 17th in 2022. Nonetheless, daily spending data following Easter looks softer.

Signs of a higher-income job market slowdown impacting spending

In previous Consumer Checkpoints, BofA had discussed how the underlying consumer spending outlook hinges on not only shorter-term factors such as lower tax refunds, but also the state of the labor market. In fact, the strength in the labor market, both in terms of jobs and wage growth, has helped keep consumers spending in the face of higher prices.

However, while recent data including April’s Employment Report suggests labor markets remain tight by historical standards, the bank warns that “there are broad signs of moderation in the labor market.” Nonfarm payrolls increased by 253k in April, down from the 2022 monthly average of 400k. Similarly, the latest initial jobless claims data through May 11, spiked to 264k, the highest print since October 2021 and far higher compared with the average of 214k in 2022.  Meanwhile, in further signs of upcoming labor market turmoil, job openings in March fell 20% from the peak a year ago.

But perhaps most notably, there was further differentiation in the labor market among income groups. Bank of America internal data offers additional insight into which people and households are seeing the clearest impact from this early labor market deterioration. The bank identified households receiving unemployment benefits through direct deposit and detected changes in trends across income cohorts. The number of unemployment benefits recipients among higher-income households increased over 40% in April from the fairly low levels a year ago. This was the fastest increase among all cohorts and five times more than the %YoY increase for lower-income recipients.