Recent reports from Bank of America CEO Brian Moynihan have highlighted a concerning trend in the US economy. Both consumers and businesses are exhibiting caution when it comes to spending, largely due to elevated inflation and interest rates. This shift in behavior is significantly impacting the overall growth rate of purchases, ranging from hard goods to software.
One of the key indicators of this economic caution is the decline in consumer spending via card payments, checks, and ATM withdrawals. While these transactions have grown by about 3.5% this year, it is a significant slowdown from the nearly 10% growth rate observed in May 2023. This deceleration is a clear sign that consumers and businesses are taking a step back and reassessing their purchasing patterns.
The slowdown in spending can be traced back to the last summer and is consistent with the “very low growth” environment observed from 2016 through 2018. Factors such as inflation and borrowing costs, which have remained higher than usual even a year after the last Federal Reserve rate increase, are creating challenges for both consumers and businesses. These economic pressures have forced individuals and companies to be more cautious with their financial decisions.
Small- and medium-sized businesses, in particular, are feeling the effects of this economic caution. Business owners are expressing optimism about their overall business outlook but are hesitant to expand. This hesitance can be seen in reduced hiring, slower equipment purchases, and decreased software investments. These factors, when combined, can have a significant impact on the overall growth and stability of these businesses.
Looking ahead, Bank of America economists predict that it will take until the end of next year for inflation to be brought under control. Additionally, they believe that the Federal Reserve will begin cutting interest rates later this year to help stimulate economic growth. Despite these measures, the US economy is expected to grow at a modest rate of around 2%, avoiding a recession but still facing significant challenges.
The cautious approach to spending exhibited by both consumers and businesses in the US is a direct result of elevated inflation and interest rates. These economic challenges have led to a decrease in overall growth rates and have forced individuals and companies to reassess their financial strategies. As the economy continues to navigate through these uncertain times, it will be crucial for policymakers and businesses to work together to find solutions that promote sustainable growth and stability.