Consumer spending is ‘a tale of two wallets,’ economist explains

00:02 Speaker A

Bank of America’s latest consumer data tells a tale of two wallets in America. Spending is still rising, but it’s mostly driven by higher-income households.

00:09 Speaker A

We’re bringing you more now. David Tinsley is senior economist at the Bank of America Institute. David, it’s good to see you.

00:15 Speaker A

So your report calls it a tale of two wallets, David. Explain this trend for us. What is the divide between high- and low-income consumers right now and what is driving it?

00:27 David Tinsley

You know, it’s pretty broad. So the overall picture is solid, spending across the US in our data for four consecutive months is up 0.2 months from the month in September.

00:41 David Tinsley

But if we go just below that, high-income consumers, annual spending growth, card spending growth, 2.6, low-income consumers, the bottom third of households by income, just 0.6.

00:54 David Tinsley

So there is a real difference.

00:57 David Tinsley

It’s pretty broad, at least since the pandemic.

01:07 David Tinsley

And, you know, I think the main reason, I mean there are several reasons, but I think the main reason is wages. When we look at our data, the salaries going into people’s accounts, you know, it’s a very large data set. We have 69 million individual and small business customers.

01:21 David Tinsley

When you look at that, high-income wage growth, 4% year over year, is a pretty solid number.

01:27 David Tinsley

Low-income consumers, households, are growing by 1.4% year over year.

01:31 David Tinsley

And this disparity has actually widened in the last six months. I think this is the main factor.

01:39 Speaker A

What if the David stock market experiences a pullback or correction? What might this mean for high-income consumers?

01:52 David Tinsley

You know, that’s an interesting point. In the United States, and of course in many other countries, the distribution of wealth is very skewed.

02:03 David Tinsley

This means that many financial assets tied to the stock market are at the top of the income distribution.

02:13 David Tinsley

When we look at our data in detail and look at the spending growth of the top 5% of households by income, we see a pretty close correlation between what the S&P has been doing in recent years and how far their spending has lagged in the middle of the income distribution.

02:30 David Tinsley

So I guess that means the stock market has always remained roughly where we are, with higher income spending growth remaining intact, remaining intact, still outside median income, if you will.

02:47 David Tinsley

Frankly, if there is a correction, we may see some softening there.