Wealthier Americans aren’t spending – or earning – as much as they used to.
Data from the Bank of America Institute on Wednesday shows that wage growth has slowed faster for households earning more than $125,000 than for lower-income households, while spending trends followed a similar pattern. Discretionary spending by higher-income households on Bank of America credit and debit cards has fallen below that of lower- and middle-income groups since the beginning of this year.
The data is remarkable, argues Bank of America, because the top 40% of households account for more than 60% of total consumer spending. Bonuses, which tend to fluctuate more than the basic salary, are included in the salary calculation.
“A slowdown in the labor market caused by the higher end of the income spectrum could have an outsized impact on the broader economy,” BofA wrote in a note to clients. “From now on, the labor market will start to weaken from a very buoyant position, so it will likely take some time for the full impact on consumer spending to be felt.”
While unemployment remains at historically low levels, Bank of America says claims for unemployment benefits are increasing increases fastest in the highest income group. Higher-income homes filing for unemployment benefits rose 40% in April from the same month last year — more than five times the rate for lower-income brackets, according to BofA’s internal data on direct deposits into customer accounts in 30 states.
So, while the April jobs report showed an overall resilient job market that is hotter than expected for the 13th straight month, BofA data shows the cracks are appearing in the top income bracket, where headlines of layoffs have littered the tech industry for months.
Data from the Bank of America Institute shows that households earning more than $125,000 are experiencing a faster decline in wage growth than any other income group.
In total, Total card spending fell in April for the first time since February 2021 on an annualized basis, according to Bank of America data. In retail, luxury fashion is one of the biggest laggards, down 15% compared to 2022. In services, accommodations fell more than 3% YoY, while airline spending fell 4.5% YoY.
The story goes on
While Bank of America savings and checking balances are still more than 40% above pre-pandemic levels, slowing spending trends match with other economic data from earlier months and comments on the quarterly numbers.
Retail sales fell twice as much as analysts had forecast in March, as some economists suggested the picture was only getting worse.
“Monthly data suggests consumer spending has lost momentum in recent months,” Chief Economist Jay Bryson Wells Fargo said in an April 27 note. In our view, these factors are not sustainable.”
“We continue to expect the US economy to enter a recession in the second half of the year, which we believe will be of moderate severity.”
Procter & Gamble’s Dawn and Bounty are seen at a store in Manhattan, New York, the United States, August 1, 2016. REUTERS/Andrew Kelly
“A Cautious Consumer”
Some of America’s biggest consumer brands issued similar warning signals in their earnings announcements. Amazon (AMZN) warned against “cautious spending”. 3M Company (MMM) sees weakness in “consumer-facing markets”. And Procter & Gamble (PG) said its “more cautious” consumers are more cautious about economizing on sheets of paper towels.
The bleak outlook comes as several major retailers have still not reported earnings. Home Depot (HD), Walmart (WMT), and Target (TGT) are expected to report their first-quarter results next week.
And while earnings far surpassed Street’s muted first-quarter expectations, investors will be watching closely what each company says about the remaining nine months of 2023.
“Retail earnings season will, in my opinion, be the greatest opportunity for the individual investor to see what’s next, and the most important part will be the CEO’s comments.” JJ Kinahan, CEO of IG North America, told Yahoo Finance Live on Monday.
Josh is a reporter for Yahoo Finance.
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