(FG Trade/E+/Getty Images)
After years of above-target inflation, geopolitical chaos and recession in Europe, the US economy remains resilient. The reason for that is mostly the American consumer, with spending accounting for about 70% of gross domestic product.
But recent data shows that Americans are spending less money than they used to. That's a scary prospect for economists.
On Thursday, Bank of America CEO Brian Moynihan said that his customers are slowing down the rate of their purchases. Consumer payments, as measured through credit cards, checks and ATM withdrawals, have grown by 3.5% since last year, he said. That's down from 10% growth the year before.
"Both of our customer bases that have a lot to do with how the American economy runs are saying, 'You know what? I'm being careful, slowing things down,'" Moynihan said, referring to both consumers and businesses, at a financial conference in New York.
A recent survey by accounting firm KPMG found a similar pattern. While people are still mostly optimistic about their own financial situations, they worry about the direction of the US economy, they found. Additionally, 65% of those surveyed, including nearly 60% of those making $200,000 or more, said that they expect to do more discount shopping this year, while 14% plan to use buy now, pay later services.
Before the Bell spoke with Peter Torrente, a banking and capital markets leader in KPMG's audit practice, about what that means for the second half of the year and beyond.
This interview has been edited for length and clarity.
Before the Bell: Your 2024 CEO survey showed that business leaders are optimistic about the economy but not so much about their own company's prospects. This survey shows that consumers feel just the opposite– optimistic about their own financial standing but not about the macroeconomic environment. How do you explain that discrepancy?
Peter Torrente: It's clear that Americans are viewing the growth prospects of the economy through an inflation lens, and that impact is experienced in their everyday lives. So despite the tailwinds of the strong labor market and low unemployment, the erosion of purchasing power is making it harder to be certain about what's ahead in the coming year. That's coloring consumers' outlook.
While we see in the survey that consumers are more optimistic about their own financial situation, they're less optimistic about the overall prospects for growth in the US economy in the coming year compared to business leaders in our CEO survey. You see that come through in some of the statistics around shopping patterns and habits. Regardless of income level, consumers are seeking to do more discounted shopping over the year ahead despite the strong labor market and household balance sheets.
People are changing their shopping habits regardless of income level. They're looking to make their paycheck go further.
We've written about how bifurcation is the word of the summer. Do you see any stratification among consumers?
Yeah, about 65% of those surveyed said that they're planning to do more discounted shopping. And 14% are planning to use buy now, pay later services. This data actually indicates that things aren't totally bifurcated among income levels – everyone is changing their habits.
Something that surprised me in this survey is that 75% of respondents don't believe that interest rate cuts by the Federal Reserve will improve their personal financial situation. There's so much focus on the Fed among investors, but consumers don't seem to be as interested…
There have been lots of predictions about interest rates over the last few years, and the goalposts keep changing and outlets keep changing on those. I'm not sure how much consumers can anchor to when a rate cut is coming or if there will even be a rate cut. So people are just less focused on that, they don't think it will be helpful in the short term.
Comments
Post a Comment