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Consumers: Not Drowning but Not Soaring Either

A Bank of America Institute report on July consumer payments shows a mixed inflation picture for consumers.
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The July consumer price report provided mixed data on inflation, with prices unchanged in the month from June but still up 8.5% from a year earlier.

A report on July consumer payments by Bank of America Institute, the bank’s internal think tank, similarly showed mixed results. Total payments rose 7% in July from a year earlier, about equal to the increase in June.

Credit- and debit-card spending, which account for more than 20% of total payments, gained 8% in July from a year earlier, while card spending per household climbed 5.3%, easing from a 5.7% ascent in June.

“Despite worries about the consumer, the nominal spending growth rate on Bank of America cards has held up, demonstrating steady resilience,” the report said. But, “real [inflation-adjusted] card spending continues to be under pressure.”

Rent Woes

Rent remains a problem for the one-third (34%) of households that don’t own their home. Median rent payments climbed 7.4% year-on-year in July, with middle-income ($51,000-$150,000 a year) and younger renters seeing the largest increases.

The median rent payment appreciated 16% in July from a year earlier for Generation Z (born 1991-2012), compared with just a 3% gain for Baby Boomers (born 1946-1964).

To be sure, “lower gas prices provided some relief in July, and promotional events from retailers boosted goods spending,” the report said. Gasoline prices dropped 7.7% in July from June, according to the government.

Gasoline spending as a share of total card spending per household dipped to an average 9.3% in July for lower-income households (less than $50,000 a year), from a peak of nearly 10% in June, according to the Bank of America Institute report..

At the same time, many retailers ran sales to rid themselves of bloated inventories. And Amazon’s  (AMZN)  Prime Day event ran July 12-13. But overall, “goods spending faced great downward pressure as spending rotated to services,” the report said.

Strong Savings Balances

Meanwhile, “household deposit and savings balances remain elevated, and consumers haven’t yet showed signs of increased borrowing,” the report said. “Consumers still have dry powder.” (Dry powder is available cash.)

The largest proportionate increases in median savings and checking balances came in lower-income households.

“Looking at the balances across age groups, there is little difference, aside from Gen Z, where the larger increase may reflect natural progression of this age group into careers,” the report said.

Bottom line: “Our internal spending and payments data suggests consumers are not wilting in this summer heat,” Anna Zhou, economist for the Bank of America Institute, said in commentary accompanying the report.

“While wallets are getting squeezed for the 34% of U.S. households who are renters, relief from lower gas prices and retail promotions encouraged consumers to continue to spend throughout July.”