I think it’s safe to say we all knew that Americans aren’t exactly in the best position when it comes to their ability to fund purchases from unencumbered cash flows.
Just think of America’s households like you think of US shale operators: negative FCF machines that rely on capital markets to plug funding gaps and compensate for a deeply ingrained propensity to outspend.
As Bankrate recently wrote, “just 41 percent of adults [surveyed] said they would pay an unexpected cost from savings.”
Well consider all of that as you read the following out today from BofAML.
Based on the aggregated BAC credit and debit card data, retail sales ex-autos declined 0.2% mom seasonally adjusted in February. After smoothing through the sharp swings over the past two months, retail sales ex-autos are increasing at a 0.1% mom pace on a three-month moving average, which is a slowdown from the recent trend.
We think there is a specific reason for the contraction in sales in February: tax refunds were delayed. This is due to a change in tax law which calls for the IRS to wait until February 15th to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the additional child tax credit (ACTC). Although refunds nearly caught up at the very end of the month with a spike on February 23, the lack of refunds earlier in the month likely weighed on sales. We see two ways to test this theory: 1) debit vs. credit card spend and 2) sales by income level.
Comparing debit and credit card spend is a good indication since presumably usage of debit cards should be more sensitive to the tax refund (proxy for cash) than credit cards (leverage). Indeed, we found that retail sales ex-autos for debit cards declined 1.7% mom while credit card spending was up 1.8% mom. The second test we looked at was by income cohort — the tax changes are more likely to impact the lower income households given that the EITC and ACTC are aimed at assisting lower-income households. We see this clearly in our data where the lowest income quintile reduced spending by 3.4% while the highest income quintile actually increased spending by 0.9% mom. We combine these two factors in the Chart of the Month to show weaker debit card spending, particularly for lower income households.