The Impact of Banking Woes on Consumer Spending During Q1 2023: What To Expect This Earnings Season

The weeks pass and here we are already at the beginning of the week of first quarter results of the year 2023. A year which was obviously marked by a first liquidity event. How are consumers reacting to banking woes, and what to expect this earnings season? That’s what we’re going to see today.

Are banking troubles stressing consumers?

In the document from the last minute of the March 2023 FED, we can read:

« A few participants observed that high-frequency measures of consumer sentiment had yet to show any significant change following recent developments in the banking sector.. »

However, personal consumption expenditure has been in freefall since March, as we can see in the graph below.

And the latest data provided by the Bank of America (BoFa) reveals a sharp decline in spending by card in the month of March, from 1,5%.

L’energy, home improvement and large surfaces were the sectors most affected. I also invite you to remember that the grocery store spending are the only having (slightly) increasedthis is a piece of data that will be used in the rest of this article.

THE consumers are therefore potentially stressed by bank troubles ? Nothing is less certain, it is not necessarily this event that caused the spending of American citizens to fall. We can see that the wage growth is slowingputting pressure on consumption.

Consumers are suffocated

As explained in this article from Bloomberg, the slowdown in wages weighs on spending. Below is the graph of the variation over 1 year of the average earnings per hour of all employees.

The last note of the Bank of America (BofA) explains that wage growth explained the consumption resilience in 2022, which allowed consumers to spend even with very high inflation. But for a few months now, the average gain per hour in the private sector is collapsing which weighs on the purchasing power of consumers.

THE high-income households are those who least resist : their wage growth is even negative for the first time since March 2020.

which is consistent with what we had already observed at the beginning of the yearhiring freezes and job cuts in the technology and financial sector are putting downward pressure on white-collar pay.

But high-income earners are not the only ones to suffer from inflationary currents.

L’allocation SNAP (Supplemental Nutrition Assistance Program) is an allowance designed to help low-income people buy food. With the recent COVID pandemic, the United States Department of Agriculture has authorized states that wish, to increase these benefits by 40% until February 2023. 33 States then made the choice to continue this exceptional assistance until that date.

This allocation was particularly beneficial for millions of american homesas food inflation skyrocketed.

Ce programme of exceptional help therefore came arrested last month. More and more American homes are forced to use their (low) income pour pay for food, as shown in the following graph. Something that correlates with chart number two in part one, where card spending on groceries has been buoyant.

And the Bank of America is now showing us that the total expenses of the credit and debit cards collapse over a year.

The earnings season arriving this week, with big names like Netflix, Bank of America, Goldman Sachs or even Tesla, this could be worrying. But I think the data we’ve seen above is too recent to heavily impact the first quarter results.

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En attendant la earning season

Let’s talk about earnings season. Many of you know it, the earning season is a month when listed companies reveal their results. It’s a period that brings its share of volatilityand that’s good, because the markets are very calm at the moment, we had some discussed last week.

The BoFa with and guard on the next earnings season. They expect reported earnings to be in line with expectations, but still down.

The restrictive monetary policy should weigh on investment expenditure (CAPEX) and share buybacks. Share buybacks were a major factor in supporting the rise in prices, driven by artificially low interest rates.

The SLOW tends to lead SP500 sales growth by two quarters, so we can expect a further slowdown in sales growthinformation that the market does not seem (yet?) to take into account.

We had already talked about SLOOS in This articlebut let me remind you all the same:

The SLOOS represents the ” Senior Loan Officer Opinion Survey », or the opinion survey of loan officers. This is a quarterly survey conducted by the FED to gauge their view of credit conditions.

The sale growth (change in turnover) technological actions of the SP500 shows us a similarity with the dotcom bubble at the end of the 1990s. THE investors seem underestimate the technology industry addiction to the economic health.

Although earnings season is coming, Goldman Sachs says the options market is particularly quiet, with a implied volatility (which could be translated as expected volatility) of only 4.4% on average. A particularly low level if we refer to the history.

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