Bank of America's consumer division - its biggest profit center - pulled in $3.3 billion in profit during the second quarter, according to the company's July 14 report. With access to roughly 39 million checking accounts, the division provides a broad perspective on the U.S. economy's health.
Gas expenditures accounted for a significant portion of the rise during the first six months of 2023, increasing by 14% over that span, per the bank's slide deck. As a result, gas became the top category for credit and debit transactions, ahead of entertainment and travel, both of which also saw gains.
Bank of America's CEO, Brian Moynihan, pointed to three things during a conference call with analysts. He first credited the strong consumer for the economy's unexpected durability. Second, ongoing AI-driven investments across the board are supporting the economy. Third, easing energy costs are providing relief.
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"The US economy has proved more durable than expected, supported by the strong consumer, ongoing AI-driven investments across the board and easing energy costs," Moynihan said, though he warned "inflation and tighter monetary policy remain key risks."
During the conference call, Chief Financial Officer Alastair Borthwick stated, "Consumers remain resilient as average deposit, investment balances and spending all showed linked-quarter increases." In that segment, he said, "credit quality remains strong and in line with expectations."
Given that the Federal Reserve has maintained high interest rates to combat inflation, the sustainability of consumer spending is a critical indicator. Bank of America's extensive checking account data provides a unique window into spending patterns across income levels and regions. While the current quarter shows strength, analysts will be watching for any signs of strain, particularly among lower-income households, as savings buffers dwindle and credit card debt rises.
This resilience comes despite the Federal Reserve's aggressive tightening campaign. Since March 2022, the central bank has raised its benchmark rate from near zero to above 5%, aiming to cool inflation. Bank of America's consumer data offers a real-time gauge of how these policies affect everyday spending.
Moynihan noted that while lower-income customers face more pressure, overall deposit and investment balances have increased, suggesting many households still have financial buffers. The bank's profit target of $20 billion from the consumer division by 2030 depends on maintaining this delicate balance.
The Federal Reserve has kept interest rates high to cool the economy. If prices stay sticky or the job market softens, spending could take a hit.
So the picture is mixed: the consumer is doing well today, but the headwinds have not disappeared.
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