Consumer Spending Off to Strong Start for ’23

A new analysis by Bank of America Institute shows signs of a strengthening in consumer spending at the start of 2023. BofA credit and debit card spending per household rose 5.1 percent year-over-year (YoY) in January, compared to 2.2 percent YoY in December. While this increase includes the impact that the Omicron variant had on consumer spending in January 2022, the institute points to a variety of factors boosting consumers:

 * An increase in spending the weeks after Christmas, suggesting consumers could have held back holiday spending to maximize savings from post-holiday promotions and discounts.

 * An increase in minimum wages in over 20 states, many of which bring the wage rate in line with inflation, put more cash in the pockets of a significant proportion of workers, enabling increased spending.

* An 8.7 percent increase in Social Security payments went into effect in January, the largest increase in over 40 years. This increase impacts approximately 70 million consumers, the U.S. Social Security Administration reports.

* Resilience in the labor market – evidenced by January’s exceptionally strong non-farm payrolls report – underpins increased consumer spending throughout the month.

Households continue to face rising costs like rent and food inflation, areas which have a greater impact on lower-income consumers. It seems unlikely, however, that a tipping point in spending will be reached in the near term, BofA says.

“While spending was slowing towards the end of 2022, consumers have entered the new year with a spring in their step” said David Tinsley, senior economist for the institute, a think-tank established by the bank last year. “With favorable macro tailwinds like the strength of the labor market and income gains, we have reasons to be hopeful that this increase is not just a blip but rather a longer-lasting trend.”

Click here for more of the report’s findings.