How’s the Consumer?

The consumer is the economy.

I bought a coffee this morning for $3.20. Later I’ll be taking my six-year-old to the city. We’re going to spend $30 on train tickets, $50 at the Museum of Natural History, and another $30 on food. 

We are a nation of spenders. 68% of our GDP comes from us opening our wallets.

If you think we’re going to have a recession in 2024, you have to think Americans are going to curtail their spending.

We heard from CEOs of the biggest banks this week as we enter earnings season. What they’re seeing and saying is not indicative of a consumer that is anything other than healthy.

Jamie Dimon of JPMorgan Chase said “A very strong labor market means, all else equal, strong consumer credit. So that’s how we see the world.”

Brian Moynihan, the CEO of Bank of America had similar things to say. Before we get to that, shameless investor plug. I listen to these earnings calls on Quartr. If you’re an analyst who follows companies, I can’t recommend this highly enough. Live transcripts and slides all in one place. And that’s just scratching the surface of what they can do. 

Here is a screenshot from the Bank of America Call

Moynihan said:

“If you think back, as we ended 2022 and entered 2023, the great debate was how much the pandemic surge in deposits would dissipate. But look — looking today, we ended 2023 with $1.924 trillion of deposits, only $7 billion less than we had at year-end ’22 and 4% higher than the trough in May of this year. The total deposit — the total average deposits in the fourth quarter remained 35% higher than they did in the fourth quarter of 2019.”

Total spending from BofA customers was $4.1 trillion in 2023, 4% higher than it was in 2022, and 35% higher than it was in 2019, the full year before the pandemic.

We are spending our butts off, but we’re not overextending ourselves. Here’s Moynihan again:

“They’re using their credit responsibly, much is made of higher credit card balances, but on the size of the economy and the size — people are forgetting that economy is a lot bigger than it was in ’19 because of the inflation and everything. And as a percentage, we don’t see any stress there. We see a normalization of that credit. So they’re working, they’re getting paid. They have balances in accounts. They have access to credit. They’ve locked in good rates on their mortgages and they’re employed. It’s — we feel it’s good. So we think the soft landing is a core thesis and our internal data supports what our research team sees.” 

People are going to continue to spend as they have been as long as they have the income to support it. And the economy is going to be fine as long as people continue to spend.

This should be supportive of a decent stock market. It doesn’t mean we won’t have corrections. We will. It doesn’t mean we can’t get a bear market. We can. But as long as the economy is humming, risk assets should do fine.

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