Consumer Checkpoint: Spending season
The desk interprets recent consumer spending data as indicative of resilience in the U.S. economy, particularly as holiday season shopping ramps up. According to Bank of America, total card spending per household grew by 5.8% year-over-year in October, with discretionary services remaining the main growth drivers. This suggests solid underlying consumer confidence, which may support the U.S. dollar. Per the full note from Bank of America, households continue to manage their finances effectively, countering pressures from inflation and higher interest rates.
What the desk is arguing
The desk views the robust consumer spending data as a key indicator of economic stability in the U.S., which underpins potential dollar strength. As reported, October saw a 5.8% year-on-year increase in card spending per household, highlighting a strong holiday season ahead, which typically boosts retail sales. Per the full note from Bank of America, this data aligns with a general trend of consumer optimism despite cooling growth in some discretionary categories.
Moreover, the ongoing recovery in household balance sheets provides a crucial tailwind for consumer expenditures. The note emphasizes that even with certain categories showing slower growth, services continue to lead the way, suggesting a shift in consumer priorities rather than an outright decrease in spending.
Where it sits in our coverage
Our consensus target for the USD is 1.075, with a range from a low of 1.04 to a high of 1.12. The following firms provide targeted insights: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
Given our outlook, the desk's position is aligned at the upper bound of the expected spread, reinforcing a bullish sentiment on the dollar amidst stable consumer spending indicators.
How other firms see it
Firms aligned with this interpretation like jpmorgan suggest a stronger dollar trajectory, while bofa offers a contrary stance, projecting a lower dollar value. The divergence in views highlights differing assessments of economic fundamentals and consumer behavior.
In related trends, the dynamics influencing USD/JPY remain critical, particularly as shifts in interest rates and consumer spending shape the broader economic landscape. These factors are closely tied to not only U.S. consumer data but also the forthcoming decisions by the Federal Reserve regarding monetary policy.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01October consumer spending rose 5.8% YoY, indicating a solid economic backdrop.
- 02Ongoing holiday season shopping is forecasted to strengthen retail performance further.
- 03Household financial health signals positive consumer sentiment, supporting dollar strength.
- 04Discretionary services remain the primary growth drivers within spending categories.
Market implications
Traders should monitor the USD, particularly against the JPY, as consumer spending dynamics play a crucial role in shaping currency strength. Key resistance levels to watch include the upper bound of 1.12, along with potential shifts in retail data leading up to the holiday season.
Risks to this view
Should consumer sentiment significantly weaken or inflation pressures escalate beyond current expectations, we could see a sharp reversal in dollar strength. Indicators of declining spending or adverse shifts in household finances could challenge the current bullish narrative.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ Consumer Checkpoint: Spending season October spending remained solid as holiday outlays strengthened and household finances stayed broadly healthy. Consumer spending remains solid, even as momentum moderates. Bank of America internal data shows total card spending per household rose 5.8% year-over-year (YoY) in October, while spending excluding gasoline increased 4.6%.
Growth cooled across a number of discretionary categories, as services remained the main driver of spending growth. Click below to access our latest publication for a more in-depth look at these insights. You are receiving this email as a subscriber to Bank of America Institute Consumer Checkpoint.
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