Unemployment payments are 'rising five-times faster in higher income households': Economist

Bank of America Institute Senior Economist David Tinsley joins Yahoo Finance Live to discuss a Bank of America report showing a slowdown in consumer spending and a rise in unemployment amongst higher-income areas.

Video Transcript

AKIKO FUJITA: Welcome back to Yahoo Finance. We are now talking about the spending slowdown. A new report from Bank of America shows card spending is down in April-- dropped to a negative-1.2%. That's the first negative year over year reading since February 2021.

Joining us now is David Tinsley, Bank of America Institute Senior Economist, David, good to talk to you today. You look at the numbers here across the board, where are you seeing the slowdown most pronounced?

DAVID TINSLEY: Thanks for having me on. Yeah, I mean, the great power of this data is we're using 67 million customers, consumers, and small businesses to really add real time insights on the US economy. And where we're seeing the slowdown-- well, first of all, broadly, you're exactly right. There's been this broad slowdown in consumer spending, down 1.2% year on year.

And, really, I think there are two messages when we burrow into that. The first is that service spending is slowing, reasonably significantly now. And that was, for a long time, keeping the consumer spending powering forward. There seems to be a slowdown in service spending going on.

And then I think the second really interesting point that we can make in our report today using our data is that higher income household spending is slowing. That's down on the month in terms of their discretionary spending. And there's a couple of reasons for that.

- I got to ask you, David, so one of the things you point out in your dad is the effect this seems to be having on-- the spending patterns within higher income households, there's been talk that should a recession occur this year, that it may be a white collar recession. What does your data tell you?

DAVID TINSLEY: Well, this is really interesting. So what we're seeing is that when we use our data to look at unemployment payments into people's accounts, we're seeing that unemployment payments into people's accounts are rising five times faster for the higher income households than the lower income households. So that does-- these are from pretty good levels, of course.

The labor market overall is buoyant. But nonetheless, it looks like the higher income households are just feeling the chill a little bit more severely than some of the other income cohorts. And I think the other point is that when we look at wages and salaries in our data, paid into people's accounts, we're seeing, actually, the level of wages and salaries on higher income households falling about 1.3% relative to April 2022.

So they are also feeling, in terms of those in work, weaker wage growth. And that's all adding up to a slightly weaker picture for the higher income households.

AKIKO FUJITA: When you look at that specific bracket, what are you seeing in terms of savings? Because the story over the last few years has been that savings rates have been relatively elevated because of the pandemic. Are you starting to see that chip away, even in the higher income bracket as well?

DAVID TINSLEY: Well, this is the good news, really. So we're very gloomy here talking about household spending, momentum fading. But the great news, really, is that when we do use our data to look at the deposit levels in people's accounts, we're still seeing those up 40% to 60% depending on the income cohort relative to the pre-pandemic period.

So you can take some good silver lining from that-- that although there's some slowdown going on, people's sentiment and, perhaps, the degree of slowdown will be buffered by those savings.

- So, David, as we know, consumers are often considered the backbone of the US economy because of how much they make up GDP. So what does, for instance, today's inflationary data tell you about the potential for-- the consequences on the consumer?

DAVID TINSLEY: Well, when you look at the inflation data today and you compare it to what we saw on card spending, you're basically seeing real spending in our measures declining somewhat. So it's telling us, really, that the household sector is still feeling quite a lot of pressure from those higher prices. The trajectory over the next six months, we'll keep looking at the data to assess that. As I say, the household buffers, that's a relatively positive story.

AKIKO FUJITA: So what does that tell you about the mindset, then?

DAVID TINSLEY: Well, you know what's interesting is when we ask people in a survey we did, a proprietary survey, on people's assessments of how much rainy day surveys they have-- rainy day savings they have, you see that coming down a little bit. So in other words, people are beginning to think, well, inflation is running fairly high, so my rainy day savings won't last me as long. But as I say, going into this downturn, these levels of buffers are really pretty comfortable.

- So, often, we saw over the past couple of years we saw some spring back in spending, particularly in the summer as we got the chance to basically go outside again. What's your expectation based on what this data is telling you now about what to expect this summer?

DAVID TINSLEY: Yeah. That's a good question. So the data is always choppy. And we can't read too much into monthly data. What we are seeing in April is weaker airfares spending, quite weak lodging, but restaurants and food a bit stronger.

So I think it could be that relative to last year, when there was a very strong unwind from people being cooped up at home, they went out, they traveled the world. They really enjoyed that pre-pandemic-- that post-pandemic boost. I think perhaps relative to that, the spending will be a bit cooler. But it may-- there may be some continued momentum going into the second half still.

- All right, David Tinsley, we will continue to watch and see if the consumer remains strong or if they start to weaken more. David Tinsley, thank you so much.