However, Bank of America’s analysis paints a different picture, highlighting robust spending growth and relatively high household deposits compared with 2019.

The resilience of consumer spending has surprised economists and may have even caused a headache for the Fed—which, in a bid to wrestle down inflation, has had to push consumers to the “point of pain” with the highest rate levels in more than a decade.

However, signs of a spending slowdown are emerging, with Deloitte forecasting a drop in growth from 2.8% in 2022 to 1.9% this year. Bank of America suggests this slowdown might be linked to the public’s perception that their financial situation has deteriorated somewhat during 2022–23.

The analysts’ note released on Wednesday points to a study from the University of Michigan, which asked consumers to evaluate their financial well-being by comparing their current situation to both the prior year and five years ago.

When comparing their finances in 2023 with those of 2018, the public generally thought they were better off. But when compared with this time last year, respondents said they thought they were actually worse off.

It’s a sentiment reflected in a recent study from the Bipartisan Policy Center (BPC) noting a third of people said they were doing worse financially than a year ago, compared with only one-quarter who said they were doing better. 

The Bank of America analysts suggest this is reasonable, writing: “A key reason people are finding their financials under pressure is likely to be the impact that high inflation has had on people’s spending power and their perception that a given amount of dollars no longer stretches as far.

“Additionally, the rise in interest rates have impacted some households’ borrowing costs.”

Bigger buffers

However, although consumers feel their dollars aren’t going as far as before, Bank of America points out that they “still appear to have significantly more cash in their checking and savings accounts than before the pandemic.”

Indeed, according to internal Bank of America data, across all income cohorts in July 2023, the median checking and savings account was 54% higher than the average in 2019.

So consumers may feel their finances are worse off—even if they have relatively more in savings—because they’re not saving at the same levels.

Bank of America points out: “Savings and deposits have come down from their peak in the first half of 2021.

“Lower- and middle-income groups saw the biggest percentage rise in their buffers relative to before the pandemic but have seen the largest decline in their balances since then.”

Time to forget lockdown?

Savings goals will feel all the more pinched when compared to the pandemic years, a time when people were locked in their homes unable to spend their usual budgets on eating out, commuting, traveling, and more.

According to the Fed, U.S. households accumulated about $2.3 trillion in savings in 2020 and through the summer of 2021, which was “above and beyond what they would have saved if income and spending components had grown at recent, pre-pandemic trends.”

As a result, Bank of America suggests, the fact that consumers are drawing down on their lockdown reserves is more telling of the public’s financial outlook than the reality that savings are still at higher levels than before the pandemic.

The analysts point out that savings and checking accounts are “very fluid” and are often tied to day-to-day spending, adding: “As such, what people view as the appropriate amount of these balances will likely depend in the medium term on how much they earn and spend.

“As people earn and spend more, they are likely to want to run higher savings balances, both to cover ‘rainy day’ contingencies and to support their standards of living when they draw upon their savings.”

Ultimately, Bank of America said it does expect to see spending from lockdown reserves—or “YOLO” spending, as it was dubbed by Wharton professor Jeremy Siegel—diminish into 2024, adding: “The exact timeline [will be] determined in part by how deposits evolve relative to income, inflation, and of course how consumers feel about the economic outlook more broadly.”