The U.S. economy is expected to continue tightening over the next year, but a recession is likely to be averted thanks to resilient consumer spending, Bank of America CEO Brian Moynihan said Wednesday.
At a lunch event hosted by the Economic Club of New York, Moynihan offered mixed commentary on the U.S. consumer outlook, which has long been a lynchpin of the economy.
He said that consumer spending is up 4.8% so far this year, but he noted that the pace of growth is weakening. Consumer spending in September is up 4.5% from the same period last year, Moynihan said.
"What you're seeing is a slowdown," he said, referring to growing pessimism since the beginning of the year. "Consumers are worried about what's happening next."
Moynihan's projection of a so-called soft landing, rather than a recession, echoed the most recent prediction by the American Bankers Association's Economic Advisory Committee.
Earlier this month, the committee forecast that the U.S. economy will grow at a rate of less than 1% through the end of the second quarter of 2024. The economists on the committee noted that robust consumer spending has helped boost the U.S. economy during what has otherwise been a volatile year.
Moynihan said that BofA's strategists are projecting the U.S. economy "slows down, troughs and starts coming back up" by the end of next year.
Even though many consumers continue to maintain safe cash balances, and consumer deposit accounts are "still up significantly," tighter consumer spending is impacting the prospects of businesses, he said.
And "lower-median" income consumers at BofA are starting to show negative cash flows, according to Moynihan.
He noted the impact that high inflation has had on consumers, as the prices of food and gasoline have risen. He also pointed to the effects of the Federal Reserve's interest-rate hikes, which have resulted in higher borrowing costs.
The consumers showing the most signs of stress are typically younger account holders, Moynihan said. At the same time, as interest rates have risen, higher-end transactional deposits have migrated to investment accounts, he said.
In July, BofA reported that its average deposit balances totaled $1.9 trillion in the second quarter, which was down 7% from the same period last year.
Moynihan also said Wednesday that the real estate sector faces mounting signs of stress, including housing shortages that have pushed up rental prices in many U.S. cities, as well as office buildings that have struggled to fill vacancies following changes in workplace culture during the COVID-19 pandemic.
However, multi-family residential housing "is still very strong," Moynihan said.
