Credit Card Data Indicates Decreased September Spending by US Consumers: A Sign of Economic Slowdown?

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The resilient consumer narrative is beginning to exhibit cracks. According to Bank of America (BAC). New data from BofA showed expenditure on the bank’s credit cards decreased 0.3% in the week ending Sept. 23 compared to the same period last year. In fact, BofA card spending has been trending downward for several weeks, and even more so when auto and petroleum purchases are excluded.

“After a strong summer, spending appears to have slowed after Labor Day,” economist Shruti Mishra wrote in a Thursday research note for BofA US and global.

“Excluding gas and electronics, most other categories have slowed in the last month, especially discretionary ones” such as furniture, according to Mishra’s team.

Recent increases in gas prices likely contributed to a portion of the increase in petroleum spending, while the release of the Apple iPhone 15 on September 22 coincided with the strongest days for online electronics sales in roughly two weeks.

The lethargic Bank of America data follows an onslaught of stronger-than-expected consumer data throughout the summer, which drove the economy to grow faster than many anticipated. In addition to inflation, Federal Reserve Chair Jerome Powell has identified this as a critical factor that could prompt the Fed to raise interest rates again.

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Economists Warn of Consumer Spending Contraction as Data Signals Economic Slowdown

Numerous economists, however, have stated that consumers have already begun to rein in their spending, and thus a downturn is imminent. Other data released on Thursday indicated that this may be occurring more frequently than initially believed. For example, personal consumption growth in the second quarter was revised down from 1.7% to 0.8%.

Michael Pearce, the chief US economist at Oxford Economics, stated that the downward revision suggests the consumer is “less resilient than previously believed.”

“We expect a weakening labor market and mounting headwinds to disposable incomes will drive a sharper slowdown in consumption and the broader economy over the rest of the year,” he wrote in a research note on Thursday.

Meanwhile, Greg Daco, the chief economist at EY, referred to the increasing headwinds confronting consumers as a “quadruple threat.” According to the economist, an impending government closure and an ongoing United Auto Workers strike could have a negative impact on economic growth. Also: Rising oil prices and the resumption of student loan payments are anticipated to weigh on expenditure.

Nonetheless, Daco noted that the present resilience of the labor market, including the highest labor force participation since the beginning of the pandemic, could assist in preventing the anticipated consumer slowdown.

“Consumers are still willing to spend,” declared Daco. “However, they are acting more prudently… As long as labor market conditions do not deteriorate abruptly, the decline should be contained; however, a faster-than-anticipated labor market contraction could have dire consequences.”

 

 

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Source: Yahoo Finance

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