Consumer Spending Is Up 20% From 2019 Levels -- Here's How to Invest

Bank of America (BAC 3.35%) CEO Brian Moynihan recently said that consumer spending is 20% higher in June than it was before the COVID-19 pandemic. Pent-up demand is translating into a big jump in spending, and in this Fool Live video clip, recorded on June 14, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss some potential winners. 

Jason Moser: Bank of America CEO Brian Moynihan has noted that consumer spending is 20% higher this year than 2019. I appreciate we're not talking about 2020 simply because that was just an outlier, a bit of an abnormal situation, so really, 2019 is the more sensible comp there. Not terribly surprised to see consumer spending making such a recovery here, Matt, it did seem like there are some pockets that are still recovering travel being one because really travel is still somewhat limited. But generally speaking, it sounds like things are heading the right direction and that's at least based on what Brian Moynihan had seen.

Matt Frankel: Yeah I mean, I'm glad you brought up the travel thing. He said credit card, debit card, and Zelle payment processing volumes are all up by 20% compared to pre-pandemic 2019 levels. That's after factoring in that travel spend is still 15% lower than it was last year. People aren't spending money on travel as much. I mean, they're starting to now, and a lot of this gets just passed off as people are spending their stimulus checks, this isn't going to last, but I don't buy that. I mean, I took my kids to Disney (DIS 0.16%) World a couple of months ago. It wasn't because we got a stimulus check, it was because we wanted to get out and we were ready, eager to go do things.

Moser: Yeah.

Frankel: People have pent-up demand. I want to say a lot of cases, in mine especially, there's like a new appreciation for being able to get out and do things. That's something that people took for granted before 2020. You don't really take for granted anymore because, I mean, I hate to scare people, the pandemic could come back and then we can be back in masks, no going out, no doing anything. People have a new appreciation for getting out and doing things that are willing to treat themselves a little bit more. As the job market keeps continuing to normalize, wage growth is off the charts, especially at the lower end of the spectrum. You see all these retailers and restaurants have to really compete with each other now for employees.

Moser: Yeah.

Frankel: You are seeing a lot of wage growth, especially that end of the industry. It's going to lead to a sustained rise in spending, in my opinion, which could be great for the banking sector. I mean, I know we're in the financial sector and I'm on the show because I like investing in banks. But having said that, I mean, banks make their money primarily by lending money. Higher spending means more loan demand. These are credit card, debit, and Zelle payment volumes. Credit card was the first one he mentioned people borrowing money to do a lot of this stuff. Not necessarily an unhealthy level because we also saw savings rates were off the charts in 2020. It's also increasing loan demand, which is great for banks. If you're worried that this is going to lead to inflation, which a lot of people are and I am, all this wage growth, all spending growth all the supply-chain disruptions, things like that are going to lead to inflation. That's good for banks to an extent. Inflation means higher interest rates, which means higher interest margins for banks, and especially Bank of America. Bank of America has a lot of non-interest-bearing deposits on its balance sheet.

Moser: That's right.

Frankel: Which means that as its loan interest rates go up, it's not paying anymore for its deposit base. So the gap between them really gets wider. I like Wells Fargo (WFC 2.74%) here is a big beneficiary, but they are asset cap is still in place, so they really can't make as many loans as they probably would like to. Who knows how much longer that will be in there-

Moser: I was going to ask you about Wells Fargo. I mean, they've been having one heck of a year. I mean, obviously that was your call at the beginning of the year for financials, stock for folks to keep their eyes on clearly performing very well. To your point regarding that coiled spring, that pent-up demand, not only were savings rates abnormally high, but we've also seen just a tremendous amount of wealth generated in home equity. I mean, if you own a home, I have certainly witnessed this and I have to believe that you have too, I mean, your home value has gone up and you have more equity in your home now than you probably did before, which gives you the ability in most cases to borrow against that equity if you want to do something, whether that's a home renovation or taking a trip, whatever it may be. I mean, it just there's been a lot of wealth generated over the past year in one form or another. One thing that Chris Hill and I were talking about this earlier today on Market Foolery, it's something that I had noted back in January from Bank of America's call. I feel like we were seeing some signs of this even back to the beginning of the year because, we heard management on the call they're talking about velocity of money. I don't know if people know that's actually a real term. I don't know that they really think about it. I mean, velocity money ultimately just being the rate at which consumers and businesses are collectively spending money in an economy. I mean, that's the rate that money is moving around. I mean, you could see that the velocity of money in the very beginning of 2020 the velocity, that metric it fell off a cliff. I mean, so whether you were employed or unemployed and receiving stimulus, I mean, no one was spending money like they normally did. It has led to, like you said, that coiled spring where there was just so much pent-up demand, and across the spectrum. Everybody had a little money to spend. It's really starting to play out now. It's fascinating to watch.

Frankel: I mean, like you said, there was just nothing to spend money on. There were times in mid-2020 where I would have paid an extra thousand dollars for a hotel room just to be able to go somewhere.

Moser: I'm sure a lot of people felt that way.