Stimulus Update: Could This One Strange Indicator Signal Economic Resilience?

Apparently, you can't keep an optimist down.

Although final stimulus checks hit bank accounts two years ago, the U.S. economy continues to show unexpected signs of strength. While some economists and politicians have spent months forecasting a dire recession, the economy does not appear to agree. One might even refer to current economic indicators as "plucky."

One of the strangest indicators to come to our attention in recent days is courtesy of a Bank of America (BofA) survey.

Paint contractors

The BofA survey involved 45 professional paint contractors from across the U.S. At a minimum, survey participants spend more than $5,000 annually on paint. Approximately 7% of respondents spend more than $100,000 annually.

According to those contractors, 2023 has ushered in a period of heavy bidding activity and large backlogs. The largest contractors -- those most likely to work in commercial end markets -- report the most significant number of customers on their waitlists.

Curiouser and curiouser

What makes these findings even more curious is the fact that economists have predicted a sluggish construction outlook. It stands to reason that lower construction rates would result in less work for contractors, but we're seeing something else entirely.

While this news is good for paint stocks like Lowe's (LOW), Sherwin-Williams (SHW), and Home Depot (HD), it also says something about consumer sentiment.

Consider these facts::

• Since the beginning of the year, interest rates have continued to climb.
• Two banks have failed.
• Home prices are as hot as ever in some pockets, pricing many would-be buyers out of the market.
• As of April 3, the GDPNow model estimate for GDP growth has dropped from 2.5% on March 31 to 1.7%.

Still, enough home and business owners hire paint contractors to create a backlog.

This may be a fluke, and paint contractors may be blanketed in false confidence. Even if that is the case, the number of people willing to shell out money for painting may be a sign of economic resilience in the face of dire predictions.

Credit card spending

Another indicator that Americans have confidence in the economy can be seen in consumer spending. According to a BofA analysis, household credit card and debit card spending rose by 5.1% year over year.

The analysis points to several possible reasons for the increase in consumer spending.

• There was a meaningful increase in spending in the weeks after Christmas, suggesting that consumers may have minimized their holiday spending to maximize the discounts they could score after the holidays.
• The minimum wage has increased in more than 20 states, bringing the wage rate in line with inflation and leaving millions of Americans with more money in their bank accounts.
• The labor market remains surprisingly strong. Despite layoffs in industries like tech, the unemployment rate remains below 4%, within striking distance of record lows.

An odd mix

There is no denying that millions continue to struggle. Households across the country continue to feel the pain of inflation, and low-income families now deal with the loss of extended SNAP benefits.

As for those who continue to spend, BofA has a theory. Coming out of the pandemic, consumers enjoyed elevated savings accounts, even after adjusting for inflation. BofA theorizes that those consumers have yet to reach their financial limits.

Despite the mix of financial circumstances, and contrary to what one might expect, BofA's analysis found that bank deposits remain above pre-pandemic levels across all income groups.

As optimistic as American consumers appear, it is yet to be seen if the increase in consumer spending is an aberration or if it's settling into an actual long-term trend.