The American consumer, long hailed as the resilient backbone of the U.S. economy, appears to be showing signs of restraint. Recent data from Bank of America’s consumer spending analysis reveals a concerning downward trend in May 2024, potentially signaling broader economic challenges ahead.
According to Bank of America Institute’s latest consumer checkpoint report, overall card spending declined 0.3% year-over-year in May, after adjusting for inflation. This represents the first inflation-adjusted decline since 2022, when pandemic-era stimulus effects were waning. The data, drawn from Bank of America’s proprietary internal customer base of over 70 million consumer and small business clients, offers a real-time window into spending behaviors nationwide.
“We’re seeing increasingly cautious consumer behavior across multiple spending categories,” said David Tinsley, senior economist at the Bank of America Institute. “While not yet a dramatic pullback, these patterns suggest households are becoming more selective about their purchases in response to persistent inflation pressures.”
The spending slowdown was particularly pronounced in discretionary categories. Department store purchases fell 3.1% year-over-year, while furniture spending dropped 2.7%. Perhaps most telling was the 1.9% decline in restaurant spending, traditionally a resilient sector even during economic uncertainty.
This pattern aligns with recent Federal Reserve data showing that revolving credit, primarily credit card debt, has surpassed $1.14 trillion nationally. The average credit card interest rate now hovers around 21.5%, according to Bankrate, placing additional strain on household budgets already stretched by inflation.
For lower-income households, the spending pullback appears more dramatic. Bank of America customers with annual incomes below $50,000 reduced their spending by 1.7% compared to last year, while middle-income households ($50,000-$125,000) showed a more modest 0.8% decline. High-income households (over $125,000) actually increased spending by 0.5%, highlighting the uneven impact of economic pressures across income brackets.
Geography also plays a significant role in these spending patterns. States with higher housing costs, particularly in the Northeast and West Coast, showed steeper spending declines. “We’re seeing regional variations that correlate strongly with housing affordability challenges,” noted Mark Zandi, chief economist at Moody’s Analytics in a recent interview with Bloomberg. “In areas where housing consumes a larger portion of monthly budgets, discretionary spending is naturally more constrained.”
The spending slowdown coincides with other economic warning signals. The Conference Board’s Consumer Confidence Index fell to 100.4 in May from 103.1 in April, reflecting growing concerns about future business conditions and employment prospects. Meanwhile, the personal savings rate has declined to 3.6%, well below historical averages and suggesting limited financial buffers for many households.
Retail executives have begun acknowledging these challenges in recent earnings calls. Brian Cornell, CEO of Target, noted during the company’s May earnings call that “consumers are making increasingly thoughtful decisions about their spending, prioritizing essentials and seeking value across categories.” Similar sentiments were echoed by executives at Walmart, Macy’s, and Home Depot.
Not all sectors are experiencing decline, however. Essential spending categories showed resilience, with grocery expenditures up 1.2% year-over-year after inflation adjustments. Travel spending also remained positive at 2.1% growth, though this represents a significant deceleration from the double-digit growth seen in 2023.
What makes this spending slowdown particularly concerning is its timing. Unlike previous periods of consumer restraint, this pullback is occurring amid a still-strong labor market, with unemployment at 3.9% as of May 2024. “The combination of full employment with cautious spending suggests that inflation pressures and high interest rates are finally taking a meaningful toll on consumer psychology,” explains Joseph Brusuelas, chief economist at RSM US.
For Federal Reserve policymakers, these spending trends present a complex picture. While cooling consumer demand could help moderate inflation, too sharp a pullback risks undermining economic growth. “The Fed is walking a tightrope,” says Dana Peterson, chief economist at The Conference Board. “They need inflation to moderate without triggering a spending freeze that could accelerate economic contraction.”
Looking ahead, economists remain divided on whether this spending moderation represents a temporary pause or the beginning of a more significant retrenchment. The data suggests a consumer increasingly influenced by practical considerations rather than impulse – comparing prices, delaying major purchases, and prioritizing necessities over luxuries.
As summer approaches, traditionally a strong season for consumer spending, all eyes will be on whether these trends continue or reverse. Recent gas price declines could provide some relief to household budgets, potentially freeing up spending power for other categories.
For businesses, the message is clear: consumer spending patterns are evolving, and companies that recognize and adapt to these changing priorities will be better positioned to weather potential economic challenges ahead. As Bank of America’s data reveals, the era of pandemic-fueled spending exuberance appears to be giving way to a more calculated, cautious consumer mindset.
