BofA Warns "Wealth Effect" Spending Muted, Consumers Cautious

Tyler Durden's picture


Consumer spending was soft in July. BofA data shows retail sales ex autos, measured from spending on credit and debit cards, increased only 0.3% mom seasonally adjusted. This , BofA warns, sends a somewhat weak signal in advance of next week’s retail sales report. Crucially, while supply of credit is abundant, BofA's Michelle Meyer concludes demand is weak and this cautious consumer behavior suggests the positive effect on spending from wealth creation may be muted in this cycle.


As BofA writes,

The chart below shows that applications for credit cards are only up marginally from the recession lows and still significantly below the pre-crisis peak. Yet at the same time, the approval rate for credit cards has increased markedly. This suggests that slow recovery in credit card debt is more a story of weak demand than restricted supply.

This cautious consumer behavior suggests the positive effect on spending from wealth creation may be muted in this cycle. Households have been enjoying significant wealth creation, reflecting the gain in home prices and appreciation in equity markets. However, it seems that consumers have been hesitant to add more leverage and borrow against this wealth.

Furthermore, there has been a decline in the share of spending done with credit card users who carry a balance ("revolvers").

The shift toward more transactors, those who just use the credit card to transact and do not carry a balance or pay interest, is suggestive of a more conservative consumer.

And to make matters worse - The Fed's key policy transmission channel is broken...

Despite rising home prices, there has only been a marginal pickup in origination of home equity lines of credit (HELOCs).

Indeed, many homeowners with a mortgage are still in either negative or near-negative positions (according to CoreLogic, 12.7% and 3.2%, respectively) and hence do not have sufficient equity to withdraw.

*  *  *
This all sends a somewhat weak signal in advance of next week’s retail sales report supposedly exuberant post-weather rebounds...

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Sat, 08/09/2014 - 19:37 | 5071207 Australian Economist
Australian Economist's picture

THis is good news. People are less willing to take on debt and leverage up.

Sat, 08/09/2014 - 20:01 | 5071273 knukles
knukles's picture

Guy's been reading too much ZH.... getting in contact with reality.  Gonna get fired.

Sat, 08/09/2014 - 20:08 | 5071289 max2205
max2205's picture

Seriously Fuck BoA!






Sat, 08/09/2014 - 20:16 | 5071317 dwayne elizando
dwayne elizando's picture

I couldn't agree more!

Sat, 08/09/2014 - 20:24 | 5071340 Da Yooper
Da Yooper's picture



crank of Amerika


has to realize the Amerikan public is not like


The federal government & the banks  in that they cant spend money they dont




Sat, 08/09/2014 - 20:29 | 5071353 Ban KKiller
Ban KKiller's picture

Too late...they fuck themselves quite regularly. How or why? Well they hire idiots for attorneys and the rest don't care for their jobs so they perform just enough to get paid. But the biggest reason is they all say "I won't be here when this shit blows up". Thank you low life idiot bank of america drones! 

Why don't you throw magnetic power into the servers? 

Sat, 08/09/2014 - 23:24 | 5071813 Berspankme
Berspankme's picture

I love being warned by an insolvent bank. So much street cred

Sun, 08/10/2014 - 01:11 | 5071964 good man
good man's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do...

Sat, 08/09/2014 - 19:41 | 5071224 I am Jobe
I am Jobe's picture

Black Friday Sale in Amerika 

SPAM- Check

Cheap Beer- Check

Hookers- Check 

Single Mothers for sale- Check


Sat, 08/09/2014 - 20:03 | 5071276 TeamDepends
TeamDepends's picture

Welfare mothers make better lovers

People pick up on what I'm putting down now

"Welfare Mothers"- Neil Young

Sat, 08/09/2014 - 20:06 | 5071285 TheFourthStooge-ing
TheFourthStooge-ing's picture


Sat, 08/09/2014 - 20:11 | 5071299 TeamDepends
Sat, 08/09/2014 - 20:17 | 5071307 Emergency Ward
Emergency Ward's picture


"Don't let your friends say
You have no taste
Go ahead and marry anyway
...her face is ugly,
Her eyes don't match,
Take it from me she's a better catch."

jimmy soul --"If you wanna be happy"

Sat, 08/09/2014 - 19:48 | 5071238 I Write Code
I Write Code's picture

Need more QE, send everyone in the US a check for eleventy million Obamabux and I'll show you wealth effects.

Sat, 08/09/2014 - 19:49 | 5071242 I am Jobe
I am Jobe's picture

U mean EBT and Lonestar is not enough? 

Sat, 08/09/2014 - 20:26 | 5071346 Da Yooper
Da Yooper's picture

Bail out the taxpaying public & the economy will hummmmm


keep doing what the fed wants & sooner or later you will have


a revolution

Sat, 08/09/2014 - 19:50 | 5071244 Cognitive Dissonance
Cognitive Dissonance's picture

Households have been enjoying significant wealth creation? What households are they talking about? It sounds like they pulled that one out of their arse.

Sat, 08/09/2014 - 19:54 | 5071256 Winston Churchill
Winston Churchill's picture

Survey confined to Palm Beach and Hollywood.

Sat, 08/09/2014 - 20:19 | 5071328 TheFourthStooge-ing
TheFourthStooge-ing's picture

"BofA Warns Wealth Effect Spending Confined to Eight-Figure Housing, Six-Figure Autos, and Luxury Goods; Herd Still Spooked, Disoriented"

Sat, 08/09/2014 - 19:56 | 5071259 Dead Man Walking
Dead Man Walking's picture

Married Mons for sale-check

Sat, 08/09/2014 - 19:59 | 5071267 Schmuck Raker
Schmuck Raker's picture

How do CC rates compare over the same period?

Sat, 08/09/2014 - 20:04 | 5071278 Dead Man Walking
Dead Man Walking's picture

I'd like to see a chart showing average balance vs limit for revolvers. I wonder if they are all at their limit.

Sat, 08/09/2014 - 20:07 | 5071287 Emergency Ward
Emergency Ward's picture

I wonder how many plan to make the minimum payment forever.

Sat, 08/09/2014 - 20:04 | 5071281 TomGa
TomGa's picture

A "cautious consumer???" When mIlk has risen to $4.29 a gallon and NY Strip is $12/lb, what do you expect?

Sat, 08/09/2014 - 20:10 | 5071295 I am Jobe
I am Jobe's picture

Wait till fall when the dollar takes a dump , Yippie. Strip Clubs and Hookers are still affordable in TX. What are u talking about? 

Sat, 08/09/2014 - 20:11 | 5071303 Dead Man Walking
Dead Man Walking's picture

Energy and Food way up, good thing that's not included in any indexes that matter. (sarc)


Sat, 08/09/2014 - 20:16 | 5071318 NoWayJose
NoWayJose's picture

You must be in the 1% if you can even look at the price sticker on a NY strip.

Sat, 08/09/2014 - 20:10 | 5071300 QQQBall
QQQBall's picture

ZERO yield on capital for past 5+ years. Thanks Uncle Ben!

Sat, 08/09/2014 - 20:22 | 5071336 TheFourthStooge-ing
TheFourthStooge-ing's picture

ZERO effect of voting for past 5+ decades.

Thanks, democracy!

Sat, 08/09/2014 - 20:55 | 5071405 DOGGONE
DOGGONE's picture

I am thinking that we the people should be looking for civilian leadership from among retired 3,4-stars. I think that career-long performance for what R,W&B stands for IN THEORY, is a more promising background than is skill at suckering the people -- to get reelected as the first priority.
... Louder!

Sat, 08/09/2014 - 20:13 | 5071309 NoWayJose
NoWayJose's picture

New entry in Webster's dictionary --

Cautious = Broke

Sat, 08/09/2014 - 20:14 | 5071310 NoWayJose
NoWayJose's picture

New entry in Webster's dictionary --

Cautious = Broke

Sat, 08/09/2014 - 20:28 | 5071349 Kreditanstalt
Kreditanstalt's picture

In dreamland, "wealth" is "created" by inflating asset "values"...?!?

Sat, 08/09/2014 - 20:33 | 5071371 DOGGONE
DOGGONE's picture

Hey, Hey, All citizens on deck!
Here's the truth, Tell it.
Ask journalism how much it got for its soul.
The Public Be Suckered

Sat, 08/09/2014 - 20:36 | 5071372 Seasmoke
Seasmoke's picture

I have a credit card, I'm rich.

I have hit my limit , I'm broke. 

Sat, 08/09/2014 - 20:43 | 5071383 NOZZLE
NOZZLE's picture

Looked at your 401k or IRA statement lately, mine dropped 10% from the peak in June.


I did however spend around $4,000 for cement in June and I took money with me to Europe to spend in Serbia and Montenegro.   

Sat, 08/09/2014 - 22:33 | 5071682 Space Animatoltipap
Space Animatoltipap's picture

Inflation and taxes eat the wealth effect away. Keynesians are just insane. That's not really surprising since Keynes was a homosexual. Hedonism and craziness generally go together. Just ask the Romans in the latter days of their empire.

Sat, 08/09/2014 - 22:44 | 5071708 Downtoolong
Downtoolong's picture

How does credit card debt expansion ever demonstrate a wealth effect? Borrowing money to spend is not spending new wealth creation.  

Enter the Twilight Zone.

Yellen Hires Particle Physicist To Prove Existence Of Wealth Effect.

In the latest example of top scientific minds being channeled into the financial sector, Janet Yellen, Chair of the Federal Reserve has hired Nobel Prize winning particle physicist Naveen Gupta to prove the Wealth Effect actually does exist in the economy. Frustrated by naysayers who claim the Wealth Effect is only theory, Ms. Yellen has asked Mr. Gupta to help produce empirical evidence of its existence once and for all.

In our exclusive interview Naveen explained how his basic approach will be analogous to his prior work at the Hadron Collider. “In particle physics, you deal with very low probability events occurring on an incredibly small scale”, said Naveen. “You often must bombard matter trillions of times with high energy particles before you produce one measurable event or effect of the kind you’re looking for.”

“It’s the same with the Wealth Effect.”, says Gupta, “You have to bombard the economy with huge amounts of stimulus dollars to produce even one more dollar of marginal spending by wealthy people. In fact, we estimate the probability of that happening to be even lower than rare subatomic particle reactions; like one in a Google to the power of Avogadro’s Number or something. At the current pace of stimulus printing at the Federal Reserve it could take 100 years before we record a single example of the Wealth Effect. But, we’re confident the phenomenon does exist, and that Ms. Yellen will step up the pace of printing again to produce a measurable event by the end of her first term. Considering the importance of this finding to defend the Feds stimulus programs, the $2 trillion allocated to this special project is not just a great investment, but a necessary one.” 


Sat, 08/09/2014 - 22:50 | 5071727 Space Animatoltipap
Space Animatoltipap's picture

In other words lousy worldy "scientists" are just enslaved saliving crybabies in a casino of freaks.

Sat, 08/09/2014 - 22:57 | 5071741 himaroid
himaroid's picture

The bar gals talked down on economy tonight. Tried to cheer em up. Told them that I would bring a big gang to party this fall. NOW, I turn postive, just when they finally begin to see.

Sun, 08/10/2014 - 01:19 | 5072002 motorollin
motorollin's picture

I wasn't aware BofAML had a "No Shit Sherlock" department.

Sun, 08/10/2014 - 08:53 | 5072333 Last of the Mid...
Last of the Middle Class's picture

Fucking "cautious" consumers, when will they learn. File this under "The beatings will continue until morale improves" department.  Too fricking funny.

Sun, 08/10/2014 - 10:39 | 5072489 Bumbu Sauce
Bumbu Sauce's picture

Since the depraved reprobates that comprise the American Electorate(*SPIT*) voted in the dog eater for a second term I have gone second hand/mend-not-spend ONLY.  Everything I will ever need to have to live has already been manufactured.  Of course, foodstuffs are not included in this.  I buy from people.  I pay cash.  I support artisans and self-sufficiency types.  There is no way I will ever take on debt.  My fellow countrymen can commit fiscal suicide.  As their guts spill out the self-inflicted gash in their abdomens, I will be enjoying the simple life consuming the beest food and drink knowing that I burden no one.  It isn't a sellable worldview to take, but I don't live for this world anyways.  I am but a sojourner.


"Consumer spending" is just TPTB debt-fueled orgies of materialism.  Make real relationships, set aside your cynicism and doom and find like minded people that you don't have to spend precious time on attempting to awaken.  Time is short.  Hold on to the things of this world lightly so that it won't hurt when they are ripped away.

Sun, 08/10/2014 - 10:54 | 5072526 Comte d'herblay
Comte d'herblay's picture

'Weak' signal, for sure.   But more like meaningless.  There should be no statistics issued on a monthly level for something as large Consumer spending, depending on what goods and services are included (and purposely excluded).

Better to post more sassy pictures from bad girls who want to show off their natural endowments, bestowed upon them by a terribly unfair god, who gives Katie Upton 2 inches more than she needs and deprives Kristen Stewart of something that might make her look more like a woman, than an anthropomorph. 


Sun, 08/10/2014 - 11:58 | 5072689 sharonsj
sharonsj's picture

"BofA's Michelle Meyer concludes demand is weak and this cautious consumer behavior suggests the positive effect on spending from wealth creation may be muted in this cycle."

This is hilarious double-speak and sheer bullshit.  The only wealth creation is at the top.  We have 52% of Americans saying that a crisis where they'd have to come up with an instaneous $400 is not possible for them.  And he thinks spending is muted?  Maybe he should talk to the one-percenter who said he's doing his part for the economy by buying a 140-foot yacht, and who expects his spending to trickle down.  To whom?  The waitress in the diner across from the shipyard who might get a bigger tip?

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