Consumer Checkpoint: Strength in numbers
The current commentary from Bank of America underscores the resilience of U.S. consumer spending as it enters the holiday season, with September figures revealing a year-over-year growth of 6.2% in aggregated credit and debit card spending per household. This uptick marks one of the strongest gains observed in four years, suggesting robust consumer sentiment ahead of the holidays. Per the full note from Bank of America, the growth rate is particularly striking when considering the 5.1% increase after excluding gasoline expenses. While month-over-month spending trends showed a decline, the overall picture painted by these annual figures could indicate sustained momentum, which may influence broader economic projections and trading strategies in the FX market.
What the desk is arguing
The desk interprets the data from Bank of America as a signal of strong consumer confidence, which could bolster expectations for economic stability and currency strength through the holiday period. The solid growth in consumer spending is likely to support the dollar against a basket of currencies, providing a favorable backdrop for U.S.-centric trades.
The notable year-over-year increase of 6.2% in spending, even amid slight month-over-month softness, lends credence to the perception that the U.S. economy is resilient. Such consumer activity can lead to adjustments in central bank policy, potentially tightening monetary conditions if inflationary pressures rise. This perspective is backed by the third strongest growth rates in consumer spending seen over the last four years, indicating a solid foundation for future strengthening.
Where it sits in our coverage
Our consensus target for the USD is set at 1.075, with a range of 1.04 to 1.12 based on anticipated market conditions. Notable firms contributing to this view include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This interpretation aligns narrowly with jpmorgan's forecast while notably diverging from bofa's more cautious stance, which sits at the lower bound of our projected range. The desk’s position suggests the potential for an upward adjustment depending on future economic developments.
How other firms see it
Several firms, including jpmorgan, view the sharp increase in consumer spending positively, signaling potential strength in the USD. However, bofa remains cautious, emphasizing the modest month-over-month trends that could temper exuberance.
The trends in consumer spending are likely to have implications for key indicators such as U.S. retail sales and the Federal Reserve's decision-making. Notably, the USD/EUR pair may experience volatility as market participants digest these developments alongside upcoming economic data releases.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Consumer spending in the U.S. grew by 6.2% YoY in September, signaling robust economic activity.
- 02Excluding gasoline, spending growth was a solid 5.1%, indicating resilience despite month-over-month declines.
- 03This data could drive market sentiment towards a stronger dollar in the near term as holiday consumption potentially bolsters economic forecasts.
- 04The divergence in forecasts between major firms highlights a market split on the likely trajectory of the USD amid varying interpretations of consumer strength.
Market implications
Traders should monitor upcoming consumer sentiment reports and retail sales data, which could have a direct impact on USD valuations. A sustained positive reading in consumer metrics may push the USD higher against major pairs, particularly if inflationary signals also emerge from subsequent data releases.
Risks to this view
A sudden shift in consumer behavior, possibly catalyzed by external shocks such as geopolitical tensions or unexpected shifts in fiscal policy, could reverse the call for a stronger dollar. Additionally, if inflation pressures show signs of mitigation, it may weaken the case for continued monetary tightening, prompting a reevaluation of positioning in USD trades.
~~~~~~~~~~~~~~~ Bank of America ~~~~~~~~~~~~~~~ Consumer Checkpoint: Strength in numbers September saw solid spending across many categories and a strong start to the holidays. Consumer spending remained very solid in September. Bank of America aggregated credit and debit card spending per household rose 6.2% year-over-year (YoY), or 5.1% excluding gasoline, both the third strongest growth rates over the past four years.
Month-over-month (MoM) spending was more muted, especially without gas. 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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