According to Bank of America CEO Brian Moynihan, businesses and consumers have become more cautious about spending. He shared these insights at a financial conference in New York last Thursday. This caution is due to higher prices and interest rates that make borrowing money more expensive.
People are buying fewer items across all areas—from physical products like appliances to digital products like software. This year, the total amount of purchases through card payments, checks, and ATM withdrawals at Bank of America was about $4 trillion. This represents a growth of only 3.5%, a significant drop compared to last May, when spending grew by nearly 10%.
Moynihan pointed out that this trend started last summer and reminded him of the slow growth period the US experienced from 2016 to 2018. He explained, “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.'”
In March 2022, the Federal Reserve raised interest rates to control inflation. While these actions were intended to slow the economy to avoid a recession gently, they have resulted in a situation where borrowing costs remain high, and inflation continues to impact the cost of goods and services.
The consequences of these economic conditions are widespread and affect major corporations and everyday Americans. For example, Moynihan pointed out that consumer behavior has shifted, with people seeking better deals by visiting more stores. “They’re going to three grocery stores instead of two, is one of the stats we see,” he highlighted.
While spending on travel and entertainment remains robust, other areas, such as rent and insurance payments, have seen moderated growth. This careful spending is crucial as consumer expenditures represent a large portion of the US economy. Moynihan underlined the significance of keeping consumers engaged: “We’ve got to keep the consumer in the game in the US economy, because [they’re] such a big part of it,” he remarked. He added that consumers feel increasingly tentative due to the economic challenges surrounding them.
Similarly, small and medium-sized businesses are being cautious. These businesses are fundamental to the economy but are currently hesitant to expand. They need to hire more aggressively and rapidly invest in equipment or technology. “Business owners say, ‘I still feel good about my overall business, but I’m not hiring as much. I’m not buying equipment as fast. I’m not making software purchases as fast,'” Moynihan shared.
Looking ahead, Bank of America’s economists project that inflation will be controlled by the end of next year. They also hold a positive outlook for the US economy, anticipating a growth rate of approximately 2%. This optimism and the potential for the Federal Reserve to reduce interest rates later this year could alleviate some of the current economic pressures.
Moynihan’s insights from the conference illuminate a significant shift in spending behavior among American consumers and businesses. This shift is in response to ongoing economic uncertainties, exceptionally high inflation, and borrowing costs. How this trend evolves will be crucial for understanding the future trajectory of the US economy.
