Consumers Keep Spending: Analysis of BAC Data and Costco Sales

Pay attention to what people do, not what they say

Retail sales could be doing very well, at least according to the latest card spending data from Bank of America (BAC) Global Research. Additionally, Costco (COST), one of the few companies to release monthly comparable store sales figures, made news on April 6 with a robust monthly report. These upbeat numbers run counter to dismal readings of consumer sentiment recently.

Rising gas prices are not a big burden

Let’s take a look at the latest retail spending numbers from Bank of America (BofA). The elephant in the room is, of course, the price of gasoline. The average cost to fill your tank continues to be high. One gallon of regular gasoline costs $4.20 even as WTI (USO) crude oil prices fell precipitously.

Figure 1 – U.S. Retail Gasoline Prices:

Sift through debit and credit card data

But looking back on gas and grocery spending, retail sales look very good. The low-income group, in particular, saw a rebound in card spending, according to internal Bank of America card data.

Figure 2 – Card spend increases even though gas prices stay above $4 a gallon:

Tax refunds increase

What could be driving the still strong spending by Americans, especially those at the lower end of the income scale? Tax refunds were larger than last year, according to BofA. The median tax refund amount on April 2 is more than 5% higher than a year ago, although it is about the same as in 2019.

Consumers remain cash-strapped

Also, consider that there are still incredible excess savings in consumers’ coffers. Goldman Sachs reports that households accumulated 14% of a year’s spending in excess savings (all decreasing – due to inflation – in checking and savings accounts). While consumer checking accounts remain inflated, the personal savings rate in the United States has fallen, indicating that people are finally starting to spend all the stimulus money received in 2021.

Figure 3 – The savings surplus remains high:

Figure 4 – Flow of personal savings:

What Costco has to say

So where are we today? Costco, perhaps the best predictor of spending among middle-to-higher consumers, released blistering sales numbers for the month of March. He brought back compositions from March of +12.7% for the United States (excluding gas).

Figure 5 – Costco’s Strong March Sales Report:

The Retail Game: XRT

How should you trade this optimistic spending scenario? Consider buying dips on the SPDR S&P Retail ETF (XRT). The equally weighted fund would benefit if spending continues to be strong amid rising macro risks and recession fears. It is difficult to rule out the American consumer.

Technical take of XRT

Technically, a drop below $70 on XRT would, however, suggest lower prices ahead. The fund is already down about 30% from its peak in November. To avoid catching a falling knife, waiting for a sustained bounce above $84 might be a prudent move.

Figure 6 – XRT price history:

Conclusion

As earnings season begins, consumers seem resilient. Could sustained high gasoline prices and rising interest rates be hindering this trend? Maybe, but Americans are better positioned than ever to weather the storm.