Consumer Spending Will Keep the Economy in 'Good Shape,' Bank of America CEO Says Despite Recession Concerns

Strong consumer spending will keep the United States economy "in good shape," Bank of America CEO Brian Moynihan said on Wednesday.

While speaking with CNBC's Squawk Box, Moynihan offered an optimistic prediction for the future of the economy, even as other large banks, like Morgan Stanley, warn the risk of a recession is growing.

"The underlying consumer is doing well and making more money. More importantly, they're spending more money," Moynihan said. "The U.S. consumer continues to spend and that will keep the U.S. economy in good shape."

The Bank of America chief said that his bank's consumer base had spent $2 trillion so far this year, a figure that represents a 5.9 percent increase from the prior year.

His comments followed a tumultuous week for the stock markets, which saw the Dow Jones industrial average suffer its worst day of the year. After yields for the 10-year and 2-year Treasury bonds inverted, a signal that has preceded every recession in the last 50 years but does not necessarily guarantee economic downturn, the Dow dropped 800 points. Other indicators also signaled that global growth is slowing, due in part to uncertainty caused by President Donald Trump's attempt to restructure trade relations.

Consumer sentiment, which comprises more than two-thirds of U.S. economic activity, has been high in recent months. But it dropped 6.4 percent this month, falling to its lowest level since January, according to preliminary figures released Friday by the University of Michigan. Richard Curtin, a research associate professor at the University's Survey Research Center, wrote that the drop was driven by Trump's threat to impose additional tariffs on imports from China. The president has since tempered his warning and exempted many consumer items from the list of products that will be affected if his tariffs go into place on September 1. But $111 billion worth of imports will still be hit by the threatened tariffs, adding to the $250 billion already subject to 25 percent tariffs.

A number of indicators still signal economic strength. Hourly wages are growing more than 3 percent. The country's unemployment rate, which Trump regularly touts, is at 3.7 percent, near a half-century low. Job growth is steadily churning along at high levels.

But the recent economic warning signs have created a challenge for Trump, who has touted his ability to improve the U.S. economy. Some of the methods he used to champion his approach are becoming less useful. A steel plant in Michigan said it would temporarily lay off 200 workers, after the company, United States Steel, said earlier in the year that it was experiencing softening demand. Manufacturing is in a "technical recession" through the first half of 2019, with output shrinking for two consecutive quarters.

Although Trump has maintained that the economy is "doing tremendously well," his administration is considering implementing a payroll tax to stimulate the economy. Payroll tax cuts were used by the Obama administration during 2011 and 2012 to boost recovery from the Great Recession. The Committee for a Responsible Federal Budget estimated that enacting a payroll tax that mirrored those conducted during the Obama years––an employee-side Social Security payroll tax by 2 percentage points for two years––would cost the government $300 billion before interest.

Moynihan
Bank of America Chief Executive Officer Brian Moynihan testifies before the House Financial Services Committee on accountability for mega banks in the Rayburn House Office Building on Capitol Hill in Washington, D.C., on April 10. MANDEL NGAN/AFP/Getty Images