Note: I am travelling (Pacific time zone) until August 10. Posting will be irregular and possibly limited by time and equipment constraints.
CONSUMER WATCH
Spending in July:
Bank of America aggregated credit and debit card spending per household fell 0.4% year-over-year (YoY) in July, compared to a drop of 0.5% YoY in June. On a monthly, seasonally adjusted (SA) basis, July’s total card spending per household rose 0.3% month-over-month (MoM), following a drop of 0.1% MoM in June.
July was a strong month for services, including restaurants spending, increasing by 0.5% MoM SA, while retail spending ex restaurants rose 0.2%.
The summer travel season appears to be providing momentum to consumer spending and internationally, some of this has been ‘event’ driven. Bank of America internal data shows a 27% rise in spending in Paris and other Olympic cities over the period July 25th to August 4th compared to the same days in 2023. This figure compares to around a 23% increase in spending in London at the time of the 2012 Olympics.
Taylor Swift concerts in Europe also continue to draw US consumers too, and we saw a 35% YoY increase in spending in the cities hosting the Eras tour compared to spending in these cities over the same dates in last year.
In addition, a number of one-off factors influenced spending in July. At the start of the month, Hurricane Beryl made landfall in Texas resulting in in some downward impact on spending there. Toward the end of the month, IT system crashes globally may have frustrated some spending. On the upside, online promotions likely boosted retail spending in the middle of the month. Overall, none of these factors seemed to be a significant driver of total card spending in the aggregate.
Labor markets – growing but slowing:
(…) there are no obvious signs of a surge in joblessness in Bank of America internal deposit data on households receiving unemployment income, though there was a small rise in the YoY growth rate of households receiving unemployment income in July 2024 across income cohorts.
We’ve noted many times that the labor market remains a key source of consumer spending momentum. Our data on after-tax wages and salaries growth continues to show robust wage growth with wages for lower- and middle-income households growing faster than higher-income households. It appears that higher-income households wage growth is improving, having been close to zero for much of 2023.
In our view, wage growth should continue to underpin the consumer for some time.
Data on July retail sales will be released next week. Nominal retail trade, though still up 2.0% YoY, has declined MoM in 2 of the last 3 months. I have argued that this apparent slowdown was due to declining goods prices and that volume remained reasonably strong.
This chart shows that retail trade growth is still positive vs CPI-Nondurables and especially CPI-Durables:
In Q2, retail trade grew 0.5% QoQ but CPI-Nondurables rose 0.3% and CPI-Durables declined 1.2%. My proxy for retail inflation was –0.2% QoQ in Q2 suggesting real growth of 0.7% or 2.8% annualized.
Here’s what BofA data says:
A concern would be if households are buying fewer things per transaction, essentially reducing their ‘basket size’ and implying less overall volume expansion for a given number of transactions. While this is possible, Exhibit 9 and Exhibit 10 show that consumers are also increasingly looking to stretch their dollars. For example, in groceries and clothing, spending growth in stores focusing on ‘value’ products is stronger than overall spending in these categories. As a result, we think it likely that consumers have thus far been successful at wringing volume growth from their spending by becoming more price sensitive, even as overall inflation drops back.
Interestingly, BofA data also suggest that “For now, however, credit card utilization rates remain below 2019 levels.”
It’s important to note that not all the drawdown in savings and checking balances has been spent, either. Some households have been moving their money into less-liquid investment accounts. Bank of America internal data shows the July 2024 median balances per account for certificates of deposits (CDs) are up 25% YoY, on top of the 70% YoY growth that occurred this time last year (Exhibit 13). Some households may also have been taking money out of liquid deposits to invest directly in stocks, bonds and other financial assets.
Another area of household savings are retirement accounts. According to Bank of America’s 2024 Q2 Participant Pulse, the average 401(k) contribution rate of 6.5% remained consistent with year-end 2023, and more participants – almost 90% – kept their contribution rate consistent than in 1Q (81.2%). However, there was an increase in 401(k) plan participants that took a hardship distribution in 2Q 2024 to 0.67% from 0.61% in 1Q 2024 and 0.52% in 2Q 2023. While the overall percentage share is low, it could be an indication that there are some pressures building for some pockets of consumers.
Job Growth Stalls in Canada; Unemployment Rate Holds at 6.4% Country loses 2.8K jobs in July; economists saw 25K gain
(…) Wage growth for permanent employees decelerated to 5.2% from 5.6% a month earlier, though it remained faster than expectations of 4.8%.
Combined, the data point to an economy that’s struggling to churn out jobs, and while the unemployment rate didn’t rise as expected, it’s still 1.4 percentage points higher than in January of last year. The report adds to evidence that Canada’s job market is on track to loosen gradually, preserving a soft landing without a sharp spike in unemployment so far. (…)
“While the strong increase in full-time jobs is a positive by pushing hours worked higher, most of the job creation looks to be once again in the public sector. This suggests that economic activity remains weak in the private sector. In addition, the details shows the labour market deteriorated more for the younger cohorts,” he said.
The youth unemployment rate surged in July, rising 0.7 percentage points to 14.2%, the highest level since September 2012 outside the pandemic.
Total hours worked rose 1.9% from a year ago and were up 1% on the month.
The participation rate fell to 65%, as the labor force fell by 11,300, the first decline since September 2022.
The employment rate — the proportion of the working-age population that’s employed — fell 0.2 percentage point to 60.9%.
Job losses were led by decreases by retail and wholesale trade, as well as the financial sector, which shed 44,100 and 15,000 positions respectively. Public administration hiring rose 20,000. (…)