Bank of America CEO Brian Moynihan highlighted a subtle yet telling shift in consumer behavior, noting that American households are increasingly opting for lower-priced brands, even in categories like pet food, as inflation continues to erode purchasing power.
Spending Growth and Caution
According to the Bank of America Institute’s latest Consumer Checkpoint, total card spending rose 5.1% year over year in May, marking the fastest pace in nearly four years. While this indicates resilient consumer activity, Moynihan cautioned that the underlying pattern is one of careful spending rather than exuberance.
In an interview with NBC News, Moynihan pointed to pet food purchases as a microcosm of broader trends. “Higher end pet food is not being charged as much on our credit and debit cards as the next brand down,” he said, illustrating how households are trading down to manage higher costs.
Resilience with a Caveat
Despite the cautious shift, consumers are not pulling back entirely. Moynihan noted that spending on vacations and restaurants remains strong, even as households allocate more to everyday essentials. The Bank of America Institute report confirmed that spending was broad-based across goods and services, not merely driven by gasoline prices.
However, the report also tempered the word “resilient” with caution. It found no clear signs of households relying heavily on borrowing to support spending, but noted an increase in store visits, possibly indicating bargain hunting. The post-pandemic era of easy spending appears to be fading.
National Data Aligns
This cautious sentiment is reflected in national surveys. The University of Michigan’s consumer sentiment index rose to 48.9 in early June from 44.8 in May, aided by easing gasoline prices. Yet, Surveys of Consumers Director Joanne Hsu described views of the economy as “relatively dour,” with inflation and household costs remaining top concerns.
Inflation Squeeze
The Consumer Price Index rose 4.2% in the 12 months through May, the fastest pace since April 2023, according to Reuters. For the second consecutive month, inflation outpaced wage growth, intensifying the squeeze on household budgets. This dynamic underpins Moynihan’s pet food example: Americans are still spending on travel and dining, but many are trading down wherever possible.
The combination of resilient but cautious spending could have implications for banks like Bank of America. While higher spending boosts transaction volumes, a shift toward value-oriented purchases and potential margin pressure may temper earnings growth in the coming quarters.
