The Economy

TAKEAWAY: THE ECONOMY

MOYNIHAN:
Two things—one is we have a lot of insights. One in two consumers does business with our company, so you can see what’s going on. Literally every week, I get a report of how the spending’s going compared to the month to date, year to date—whatever you want to look across all these categories. And the second thing we have is a research team that’s number one in the world, I think six out of the last seven years. Robert [Kraft], you’ve got a pretty good franchise, but that’s a pretty good franchise, too. And they’re very good.  

What they predict—just to give you the numbers—is we think the world will grow 3.9 percent for this year, 3.7 percent next year. US, 2.9 to 3.0 percent this year, 2.7 percent next year. Europe—1.9, 1.5 percent. China—6.6, 6.1 percent. And India—7.9 and 7.5 percent. So why do I name those two economies and then stop? Because the rest of them are relatively small on a relative basis.  

There’s a couple things to think about. The US consumer economy is $12 trillion, round numbers, which is the same size as China. So, if you understand where the US consumer’s spending, you’re going to understand where the US economy’s going. The US consumer at Bank of America will spend $3 trillion during the course of the year in bill payments and checks and debit and credit cards—$3 trillion, which against a $12 trillion economy is not a bad sample size.  

Through the end of October, those consumers spent 9.5 percent more than they did last year through the end of October. The year before that, it would have been 6 percent. The year before that would have been 3 percent. Consumer spending continues to accelerate. That I’ve been tracking for 15 years. You see the nuances, ins and outs. And I remember I took the board through it one day, just all the categories, and there’s lots of things you can talk about. But that is just a phenomenal rate of growth in consumer spending. And they’re not overleveraged, so there’s not—Peter Lynch and I were talking earlier about housing isn’t overleveraged. You don’t have that problem we had before, that if things slow down, we’re going to have to pull back, because it’s more fundamental earnings and wage growth. So, that’s a good measure. And, to give you a sense, the Chinese economy we think is growing 6 percent. Whether it grows at 6 or 6.5 percent, that’s good for the world. Europe’s growing. So it all looks pretty good.  

And then if you go on the commercial side of our customer base, what they’re telling us is they’re making more money, they’re selling, the leverage in certain segments and stuff is—people are doing leveraged deals in the private equity space, but the general corporate company has de-leveraged quite a bit, because just earnings—they just earn a lot of money. So that’s the good news.

The question is, What is on their minds? That’s going to be what stops the consumer from spending, and that’s going to be what stops the employer from paying them bonuses or hiring more of them and things like that. And that’s going to come down to a little bit just confidence in the business side of the US and business side of the world, which is still strong. But with all the noise about trade wars and Brexit’s going to screw up the UK, EU economy, and things, you can get your parade of horribles in a pretty good line. But right now, the actual impact of those is not a financial impact or a numerical impact. It’s actually an emotional impact. That’s what we got to watch for the next few months.