The CEO of Bank of America said the recent debate over whether the U.S. economy is technically in a recession or not is missing the point. What matters is that current economic conditions are negatively impacting those who are most vulnerable.
“Recession is a word. Whether we are in a recession or not is really not the important thing. It’s what it feels like for the people going through this,” Brian Moynihan told The Associated Press during a recent interview at the Bank of America Tower in midtown Manhattan, where he talked about inflation and the current state of the economy, as well as the health of the U.S. consumer.
The issue of whether the U.S. economy is in recession has become politicized heading into the 2022 mid-term elections. While inflation is at a level not seen since the early 1980s and U.S. consumer confidence is falling, other measures of the economy, such as the monthly jobs report, are still strong. In response to high consumer and wholesale prices, the Federal Reserve has been raising interest rates aggressively in hopes of taming inflation while not causing too much economic damage.
Moynihan, who has been BofA’s CEO since 2010, would not say the U.S. economy is in recession, saying that declaration will have to come from “a bunch of people in Cambridge, Massachusetts,” a reference the National Bureau of Economic Research, the nonpartisan organization that determines when recessions begin and end.
However, Moynihan cited two major issues negatively impacting average Americans – gas prices and rent – as reasons to be concerned. The national average for a gallon of gasoline ballooned to just over $5 in June before falling back below $4 last week. Moynihan appeared more concerned about the rising cost of rents, tend not to fluctuate like gas prices.
“Gas prices are coming back down, but rents are going up 10, 12, 15 percent. And rent can end up taking 40 percent of these households’ income,” Moynihan said. Rent accounts for about one-third of the government’s Consumer Price Index, which showed a year-over-year increase of 8.5 percent in July.
“We are worried about, for the U.S. broad-based consumer, is the increased rents as we go into the natural turn of rents [typically in the fall with school year],” he added.
The average U.S. consumer entered this period of high inflation and economic turbulence in healthy financial shape. The U.S. government spent trillions of dollars to extend unemployment benefits and other forms of pandemic relief. In response, Americans were paying down debts faster than historic norms and had higher than normal levels of savings. Those economic programs largely ended last year.
The pace of sales at U.S. retailers was unchanged last month as persistently high inflation and rising interest rates forced many Americans to spend more cautiously. Retail purchases were flat after having risen 0.8 percent in June, the Commerce Department reported last week. Economists had expected a slight increase.
Excluding autos and auto parts, retail sales actually rose 0.4 percent in July – good news – but consumers remained wary of spending much on non-essentials: Sales were down 0.5 percent at department stores and 0.6 percent at clothing stores.
Moynihan said he still believes, as he’s said in previous interviews, that overall the American consumer is still in good shape and able withstand the economic turbulence. He says Americans who have a fixed-rate mortgage largely have locked in low borrowing costs and that credit card balances, while climbing, are still lower as a percentage of household income.
“We see no deterioration in consumer behavior from the beginning of the year until now,” he said. He did say there’s been some slowdown in the amount of money Americans are saving, which is likely due to rising costs.
Moynihan said companies are still raising wages as well, which is helping Americans cope. Bank of America itself has raised wages to help its 200,000-plus employees counter rising costs. The company gave raises to employees making less than $100,000 of as much as 7 percent, depending on longevity. That does not include the company’s typical merit raise cycle as well.
“[The raises] are helping people deal with this,” he said.
AP staff writers Adriana Morga, Paul Wisemen and Ann D’Innocenzo contributed to this report.