Corporate executives are touting the strength of U.S. consumers in the face of surging inflation, assuaging mounting fears of recession.
Bank CEOs kicked off earnings season with a consistent message that household finances and demand are in solid shape. Procter & Gamble Co., which counts Tide, Bounty and Pampers among its brands, has seen consumers reaching for premium-brand products. Bank of America Corp. and credit-card giant American Express Co. noted solid travel demand.
Tractor Supply Co. Chief Executive Officer Hal Lawton was more pointed on the retailer’s April 21 earnings call: “Any talk of recession at this point is premature.”
The state of American consumers, whose spending accounts for about two-thirds of the economy, has been up for debate in recent weeks, with some analysts expecting that decades-high inflation will sink demand and others anticipating it will remain robust.
“From our card-spend data, we have seen a strong recovery in travel, entertainment and restaurant spending,” Bank of America CEO Brian Moynihan said last week.
Even after accounting for the effects of the $1.9 trillion American Rescue Plan stimulus in March of last year, Moynihan said “we saw spending in the month of March 2022 on a comparable basis to 2021, 13% higher by dollar volume and we saw a 7.4% increase in the number of transactions. So both dollar volumes and numbers of transactions rose nicely.”
Though wage gains broadly aren’t keeping pace with inflation, Americans’ average hourly earnings were up 5.6% in March from a year ago, the most since May 2020. Household balance sheets are healthy, bolstered especially by gains in real estate and the stock market. The household debt service ratio, which compares debt payments to disposable income, is well below the historical average.
Recession Odds
Doubts about the economy’s prospects are creeping in, however. The latest Bloomberg monthly survey conducted in early April showed economists put a 27.5% chance of recession within the next year, up from 20% in March.
The fastest inflation since 1981, prospects for more aggressive policy from the Federal Reserve, still-tenuous supply chains and Russia’s war in Ukraine have added to concerns about whether the U.S. economy can sustain the solid growth experienced over the last year and a half.
For their part, Fed policy makers are poised next week to raise their benchmark interest rate by a half point. The central bank’s task is a tricky one -- tempering demand, and therefore inflation, while ensuring the economy doesn’t slip into a recession.
While economic growth will slow this year, the “back half of 2023 and 2024 are when we could see really some of the effects of all the headwinds that are gathering really become too strong for the U.S. economy to weather,” said Sarah House, senior economist at Wells Fargo & Co.