00:00Absolutely. I mean, just if you look at our latest August data, spending was up 4.5% year over
00:06year.
00:07That's a very good number. On the month, it rose 0.9. Should be a very good retail sales print
00:12this week.
00:15Absolutely. The consumer is in resilient, good shape.
00:19Is it Honeydews? Are Honeydews line item $23 at the open?
00:26I think they were. Boy, people were stacking those cups up, that's for sure.
00:29I saw one woman with four of them in her hands.
00:31Yes, exactly. Talk to us about the K-shaped economy.
00:35You folks at Bank of America, with your credit card business and your consumer business,
00:38nobody's got a better view of the consumer than you guys.
00:41Talk to us about the K-shaped economy today. How do you guys view it?
00:44Well, you know, it's really interesting. For about two years, until a couple of months ago,
00:49we were talking month in, month out, about a higher income consumer outspending the lower income consumer.
00:55Often a margin of one or two percentage points.
00:58The last couple of months, we saw a marked acceleration of the lower income consumer spending growth.
01:05Right now, they're pretty much neck and neck.
01:08Discretionary spending growth in August was about 5.7% for higher income consumers, 5.7% for lower income
01:16consumers.
01:16So that K has largely closed.
01:20Really? Where are they getting the money for this?
01:23Because I'm not seeing wage growth that great relative to inflation.
01:27Well, you know what we see in our data, and we see wages coming into people's accounts,
01:32and we get a view on this too, is we do see an acceleration in after-tax wage growth in
01:38our data for lower income consumers.
01:40And I think that's sort of two-legged.
01:43First leg is, it's a hangover of fiscal stimulus.
01:47Basically, withholdings, tax withholdings are lower this year for many people,
01:51particularly if you're an overtimeer or a tip earner.
01:54And so that's boosting take-home pay.
01:56Second is, we see some signs that the labour market at the lower end has improved.
02:02People are moving around more.
02:04They're getting bigger raises when they move.
02:06And so there is indication, I think, that at the lower end, there has been some improvement.
02:14What's the call for this week for our Federal Reserve?
02:18Because, boy, I tell you, Global Wall Street's paying attention to our Fed this coming Wednesday.
02:22Well, our economists at Global Research, they've had a long-standing call for a hike this week.
02:28I know the market's moved around a bit, but they've been on the money for a hike for some time.
02:34So that's the view.
02:35You're out of Cambridge.
02:37The blue button, the victorious Detroit Lions blue button.
02:42Bar's not here.
02:43The NFL this weekend was nuts.
02:45Good weekend for New York teams.
02:47We've got to talk about this.
02:48No, New York finally.
02:49David Tinsley, Premier League, was nuts this weekend.
02:52I'm not shaving until Tottenham scores.
02:56That's all there is to it.
02:57But, David, you've got to help me here with nominal GDP.
03:01I mean, you've got, I mean, just for starters, you've got Mark Cabana.
03:05Okay, at Bank of America, how can nominal GDP come down constructively to maintain a consumer buoyancy in America?
03:16Is it all just about pulling inflation down?
03:19Or do we have to pull real GDP back a little bit to get nominal away from this crazy boom
03:26banana republic?
03:27The economy we've got.
03:28I'm guessing you're going to see some calling in the consumer, and that's going to do some of the work.
03:33Probably not all of the work by any means.
03:36You know, the economy is a dichotomous beast at the moment, being driven by this AI boom too.
03:43For a long time, the contribution from the higher income consumer was really driving consumer spending growth.
03:50That's still somewhat the case now, even though the lower income consumer is picked up.
03:55So you've got to see, and that higher income consumer is, of course, being stoked by wealth effects.
04:00So, you know, there's a circularity here.
04:02But you've got to see some slowdown, I think, in consumer spending to get real GDP cooler, for sure.
04:10I mean, leisure and travel-related spending show the largest improvement since January.
04:16People are still out there flying around, traveling, right?
04:20I mean, wow.
04:21Yeah, I mean, over the World Cup, for example, we saw really strong spending data in the host cities.
04:27You know, people were going and they were spending just generally airfare spending.
04:32Some of its price, obviously, is holding up.
04:34But people aren't pulling in despite those price hikes.
04:38Restaurant spending, you know, broader leisure spending, all looking relatively positive, I'd say.
04:44What does the Fed rate hike mean for the American consumer, totally removed?
04:50They're not having honeydews at the U.S. Open.
04:53They're trying to get the next month's paycheck.
04:56What's that mean?
04:57Well, you know, just like on the way up, we saw essentially a large chunk of the consumer is fairly
05:08immune from these short-term hikes,
05:11just because they're on fixed-rate mortgages.
05:14It hurts people who aren't in that position.
05:16So, you know, in our data, the millennials and the Gen Z are probably in a tighter spot than the
05:21older gens who've got the wealth effects,
05:23who've got the housing and got the equity in that housing that's ramped up over decades.
05:28So I think I wouldn't expect too big a pullback in consumer spending from a couple of Fed hikes.
05:37So I think the consumer will...
Comments