Rich Americans Cut Credit-Card Spending For Third Month, BofA Says

Wealthier Americans cut their credit-card spending for a third straight month in July as inflation and market volatility weighed on sentiment, according to a study by Bank of America Institute.

Among households making more than $ 125,000 a year, spending on everything outside of the basics – such as groceries, gasoline and clothing – fell in July by about 0.5%, extending declines in the previous two months, the BofA data showed. For households with incomes between $ 75,000 and $ 125,000 there was an even bigger drop of more than 0.8% last month.

Lower down the income ladder, spending held up better. It increased in July among households making less than $ 20,000, and was little changed for those with incomes between $ 20,000 and $ 75,000, according to BofA.

The report offers a detailed breakdown of spending among groups that, in different ways, are key to the US economy’s prospects as decades-high inflation weighs on consumer sentiment and eats into household budgets.

Wealthier Americans account for a disproportionate share of overall spending, and earlier this year they stepped up spending amid a revival of demand for services as pandemic constraints eased, according to BofA. In the two prior years, lower-income consumers led spending growth. Poorer households tend to spend more of their incomes so they can have a bigger impact on the changing patterns from month to month.

“With rising inflation and financial market volatilities, there are growing concerns around a major slowdown in spending for those that are more affluent,” said Bank of America Institute economist Anna Zhou in the research note. Still, those groups remain financially healthy with a higher savings rate that can provide a “buffer” as prices soar, she wrote.

Higher-income consumers pulled back on travel-related expenses, such as airplane tickets and hotel stays, according to BofA, while lower-earning groups are still spending about 10% more on lodging than they typically do. The increase in spending on clothing during the back-to-school period was also smaller among higher earners, though outlays on jewelry jumped amid a busy wedding season.

Government data last week showed overall retail sales rose last month, albeit at a slower pace than earlier this year. Consumer sentiment hit an all-time low in June but has since recovered slightly.

This article was provided by Bloomberg News.

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