Wells Fargo, BofA CEOs say consumer demand is cooling, recession looms

US consumers plan to spend less on holiday shopping, according to CNBC survey

Many shoppers say they plan to spend less this Black Friday as the cost-of-living crisis hits.

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According to the CEOs of two of America’s largest banks, American consumers are putting the brakes on their spending as the Federal Reserve’s rate hikes reverberate throughout the economy.

After two years of pandemic-driven double-digit growth in Bank of America Card volume, “the growth rate is slowing down,” CEO Brian Moynihan said at a financial conference on Tuesday. While retail payments are up 11% so far this year to nearly $4 trillion, that surge masks a slowdown that has set in over the past few weeks: November spending rose just 5%, he said.

It was the same with the rival Wells Fargoaccording to CEO Charlie Scharf, who cited slowing credit card spending growth and roughly flat debit card transaction volumes.

Bank leaders, with their bird’s-eye view of the US economy, are providing evidence that the Fed’s campaign to dampen inflation by raising the cost of borrowing is beginning to influence consumer behavior. Buoyed by pandemic stimulus checks, wage increases and low unemployment, American consumers have been supporting the economy, but that appears to be changing. That will impact corporate earnings as companies navigate through 2023.

“There is a slowdown, that’s out of the question,” said Scharf. “We expect the economy to be fairly weak throughout the year and hope it will be a bit more benign compared to what could potentially be.”

Both CEOs said they expect a recession in 2023. Bank of America’s Moynihan said he expects three quarters of negative growth next year, followed by a slight uptick in the fourth quarter.

Charles Scharf, CEO of Wells Fargo, Brian Moynihan, CEO of Bank of America, and Jamie Dimon, CEO of JPMorgan Chase, will speak during the Senate Committee on Banking, Housing and Urban Affairs hearing entitled “Annual Oversight of the Nations Largest Banks “ sworn. at the Hart Building on Thursday, September 22, 2022.

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But in a divergence that will impact the coming months, the downturn hasn’t been felt equally among retail customers and businesses, according to the Wells Fargo CEO.

“We’ve certainly seen more stress among consumers in the lower price range than among the upper ones,” said Scharf. When it comes to the companies Wells Fargo serves, “there are some that are doing reasonably well and others that are struggling.”

Airlines, cruise lines and other experience- or entertainment-based industries are doing better than those related to durable goods, he said. This sentiment was shared by Moynihan, who cited high travel spending.

“People have been buying a lot of goods, exercising a lot of the freedom they’ve had in spending as they please for the past few years, and those purchases are slowing down,” Scharf said. “You’re seeing clear changes in things like travel and restaurants and entertainment and some of the things that people want to do.”

The slowdown is the “intended outcome” desired by the Fed as it seeks to tame inflation, Moynihan noted.

But the central bank has a tricky balancing act to pull off: raise interest rates enough to slow the economy while hopefully avoiding a severe downturn. Many market analysts expect the Fed’s interest rate to hit around 5% next year, although some say higher rates will be needed.

“You’re starting to see that [slowdown] hold on,” Moynihan said. “The real question will be how quickly they have to stabilize that to avoid further damage; that’s the question on the table.”