U.S. consumers and businesses have become cautious about spending this year due to higher inflation and interest rates, analysts said. Bank of America CEO Brian Moynihan.
Whether it’s households or small and medium-sized businesses, Bank of America customers are slowing down the pace of purchases of everything from consumer goods to software, Moynihan said Thursday at a financial conference in New York.
Consumer spending through card payments, checks and ATM withdrawals has grown about 3.5% this year to about $4 trillion, Moynihan said. This is a sharp slowdown from the nearly 10 percent growth rate seen in May 2023, he said.
“Both of our customer bases, which have a lot to do with the way the American economy works, are saying, ‘You know what? I’m being careful to slow things down,” Moynihan said, referring to consumers and businesses.
The slowdown began last summer and is consistent with conditions of “very low growth” between 2016 and 2018, he said.
Nearly a year after the Federal Reserve’s last rate hike, consumers and businesses are grappling with inflation and borrowing costs that remain higher than they are accustomed to. The Fed began efforts to curb inflation by raising its benchmark rate starting in March 2022, hoping it could slow the economy without plunging it into recession.
Many economists believe the Fed is on track for that success, which has helped the stock market reach new highs this year. But consumers are still struggling with rising prices for goods and services, and this has impacted U.S. companies with McDonald’s discount retailers as Americans adjust their behavior.
Grocery shoppers are visiting more stores looking for deals, Moynihan said. “They go to three grocery stores instead of two, that’s one of the statistics we see,” he said.
For now, moderate growth in overall spending is supported by travel and entertainment, while “other things have slowed, except for insurance claims,” Moynihan said. Rent growth has slowed, he noted.
“We need to keep the consumer in the game in the US economy because [they’re] such a big part of it,” Moynihan said. “They become a little weaker and it has to do with everything that’s going on around them.”
The same is true for small and midsize businesses, the Bank of America CEO said. His company is the second largest US bank by assets, after JP Morgan Chase. Moynihan and other bank executives are taking a bird’s-eye view of the economy, with a reach to households and businesses around the world.
Business owners say: “I’m still happy with my business overall, but I’m hiring fewer people. I don’t buy equipment that quickly. I’m not as fast at purchasing software,” Moynihan said.
The bank’s economists believe inflation will be brought under control before the end of next year and that the Fed will begin cutting interest rates later this year, Moynihan said. The US economy is likely to grow by about 2%, avoiding a recession, he added.