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BofA Sees Resilience, Strong Spending in Consumer Report

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Bloomberg Dec 12, 2024 22:47 · 13.7k Views

Holly O'Neill, president of retail banking at Bank of America, discusses the details of the firm's recently released November consumer checkpoint.

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Transcript

  • 00:00 How much power is there left in bank accounts, in desire in some of the spending trends that you're seeing right now?
  • 00:06 Well,
  • 00:07 as you said, the consumer resilience is not waning.
  • 00:10 So across all of the metrics that we look at, they look
  • 00:14 really healthy
  • 00:16 and
  • 00:17 the dry powder is there.
  • 00:18 So when you look at the money they have in their checking and savings accounts, it's still significantly higher than it was
  • 00:25 even pre pandemic.
  • 00:26 Now we've seen that come down, but
  • 00:29 it's still higher.
  • 00:30 So they still have some cushion in there across all income cohorts, high, middle, low.
  • 00:35 And in particular, the low income cohorts look even stronger when you look at it on a percentage basis.
  • 00:42 So from a liquidity perspective, they look strong.
  • 00:45 From a borrowing perspective, they also look strong.
  • 00:48 So they're borrowing in and around the same levels that they were
  • 00:52 pre pandemic
  • 00:54 when you look at our credit card data.
  • 00:56 So that looks good.
  • 00:57 They still have borrowing capacity.
  • 01:00 The credit environment from a bank perspective is, is fairly normalized.
  • 01:05 So
  • 01:05 I think the resilience of the consumer looks strong
  • 01:09 and they're spending also looks good.
  • 01:11 And we're obviously in the peak spending period of the year.
  • 01:14 So
  • 01:15 they're spending looks good.
  • 01:16 They're spending was up in November
  • 01:19 and that matches our data
  • 01:21 of our surveys that we take pre pre holiday.
  • 01:24 What are you expecting to spend during the holidays?
  • 01:26 So
  • 01:26 the reason why I find this so interesting, first of all, is because this has been what has driven
  • 01:31 US.
  • 01:31 Exceptionalism is the envy of a lot of other countries, but also
  • 01:35 grunts counter to what we're hearing from the guidance of certain retail companies in particular.
  • 01:40 How do you swear that?
  • 01:41 Well, I think, I think that the consumer you do have difference in sentiment versus actual behavior.
  • 01:48 So we look at the actual behavior of the consumer, what are they spending, what are they spending on?
  • 01:54 So as I said, spending is up
  • 01:57 holiday period, it's also up.
  • 01:59 They're expecting to spend $2100
  • 02:02 this holiday period.
  • 02:04 That's up 7%.
  • 02:06 So
  • 02:07 you know, within that we're seeing trades to more discount stores.
  • 02:12 So they're looking to stretch their dollar a little bit more
  • 02:16 and they're seeing the benefit of some lowering prices.
  • 02:20 So in gas as an example.
  • 02:22 So
  • 02:23 in gas we're seeing a higher number of transactions, but the dollar amount is lower because the prices have come down.
  • 02:29 So they're making trades within their spending behavior and they're they're really making their dollar go further.
  • 02:36 How do you distinguish
  • 02:37 the sort of trading down whole scenario?
  • 02:40 How do you say that's stretching the dollar versus this is weakness and this is something that might show some cracks?
  • 02:46 I think it in my opinion, it's the consumer making good choices with the money they have to spend.
  • 02:53 They're very informed because the overall spending
  • 02:57 number is higher year over year.
  • 03:00 But then within that they're making trades and adjustments.
  • 03:02 At the same time,
  • 03:04 their liquidity levels are still strong and they still have borrowing capacity.
  • 03:08 So,
  • 03:08 so all of those things working together I think are showing a good strong resilient consumer trend has also been this spend on services, airline spending still robust, cruises still robust.
  • 03:20 Do you see that continuing honor?
  • 03:21 Could we have any sort of rotation back into good spending?
  • 03:24 I think you could see that rotation as as you all know, during the pandemic, people really up the ante on the durable goods, the washers, the dryers.
  • 03:33 We still haven't seen that come back because those have
  • 03:37 the long shelf life.
  • 03:38 So, so I think as you see that mature, you could see it shift back.
  • 03:41 But
  • 03:42 the spending patterns really remain fairly consistent.
  • 03:45 Travel experiences, services,
  • 03:48 those are very strong.
  • 03:50 We are seeing in, in this holiday spend, we are seeing electronics come back a little bit.
  • 03:56 So, so that's also, you know,
  • 03:59 beginning trend I would say, Speaking of the holiday season, a lot of retail analysts have come on and said they're really focused on the fact that there's 5 less shopping days because it's a, it's a shrunk basically holiday season between Thanksgiving and Christmas.
  • 04:11 Do you see that having any impact at all
  • 04:13 on consumers willing to spend?
  • 04:16 No,
  • 04:16 I think overall the consumer is going to spend for the holidays.
  • 04:20 You know, it is a more truncated.
  • 04:22 But we adjust for that when we when we look at the behavior.
  • 04:25 So
  • 04:26 for the two weeks around Thanksgiving and it was late this year, right?
  • 04:29 I think it's as late as it can get.
  • 04:32 We did see that spend go up.
  • 04:34 And so I think it's just going to be a more truncated.
  • 04:37 What would you be looking for if you see any cracks of this resilience?
  • 04:41 I would look to
  • 04:43 their spending patterns first.
  • 04:46 Again, borrowing we will always look at as a bank,
  • 04:50 but the the borrowing behaviors are still really strong.
  • 04:54 They're still paying credit cards off at a pace that's faster than it was pre pandemic.
  • 04:59 That's a really good.
  • 05:00 Sign
  • 05:01 and then the liquidity in their, their checking in their savings accounts.
  • 05:05 And
  • 05:05 you know, I think we've seen that really kind of flatten a little bit.
  • 05:09 And
  • 05:09 as we get into 2025, I would,
  • 05:12 I would expect to see that start to grow again.
  • 05:14 I'm trying to,
  • 05:15 to build on what Amory was talking about.
  • 05:17 There seems to be a disconnect and please help us with this because on one hand, in this survey, you talk about the gap between the wealthiest and lower income cohorts narrowing actually marginally.
  • 05:28 You talk about
  • 05:30 bust firepower in their bank accounts.
  • 05:32 You talk about ability and willingness to borrow,
  • 05:34 and then you talk about looking to stretch their dollar.
  • 05:37 This kind of behavior that you typically see on the brink of something that does feel like to Denny's point, a weakening.
  • 05:43 So what gives?
  • 05:44 Why aren't people spending more
  • 05:47 in a traditional and free willing way when the data seems to suggest they'd be in a position to do so?
  • 05:54 I think that we've seen a permanent shift in what the consumer wants as a liquidity position in their account,
  • 06:01 right?
  • 06:01 So they, I think they got used to that during the pandemic saying
  • 06:05 I have more cushion in my bank account and I'm going to keep that there.
  • 06:10 And then they're making the trades into lower cost goods to make sure they, they keep that and maintain that level.
  • 06:17 So,
  • 06:18 you know, I think that's one of the trends,
  • 06:21 but I think it's the consumer who is very educated, very aware.
  • 06:26 There are deals everywhere.
  • 06:27 They're in social media.
  • 06:29 We know that 30% of our clients are planning to buy in social media
  • 06:33 this year, which is very interesting.
  • 06:35 And so I think they're, they're very aware and very informed and making choices.
  • 06:40 Is that the same thing as price fatigue?
  • 06:42 Because we've heard that a lot among companies that, you know, their margins, they can't keep expanding it because there's fears that people aren't willing to pay up.
  • 06:49 Is, is that the same, a different side of the same coin?
  • 06:51 I, I think it could be, yes.
  • 06:54 And I think, you know, it's consumers again making very informed choices and taking control
  • 07:00 for themselves as to where they can spend their money, where they can budget.