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NEW YORK, July 19 (Reuters) – Americans’ financial health held up well in the second quarter, even as inflation pushed up gas and grocery bills and eroded savings for the first time since the pandemic, US executives said -Banks.
Spending and deposits data from the country’s top lenders for the second quarter, including JPMorgan Chase & Co (JPM.N), Bank of America Corp. (BAC.N) and Wells Fargo & Co (WFC.N), shed new light on US consumer health – a key indicator of the likelihood of an economic recession.
US consumer prices rose 9.1% in June, the largest increase in more than four decades, with gas rising 11.2%. Runaway inflation has prompted the Federal Reserve to hike interest rates, raise borrowing costs and stoke fears of a recession.
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Still, bank chiefs across the board said consumers – who have largely been able to boost savings during the coronavirus pandemic – are financially healthy, evidenced by strong spending and few signs of credit deterioration.
“Consumers are in good shape. You spend money. They have more income,” Jamie Dimon, chief executive officer of the country’s largest lender, JPMorgan, told analysts last week.
Combined debit and credit card spending rose 15% from the second quarter of 2021, JPMorgan reported Thursday, while Bank of America, the second-largest U.S. bank, said credit and debit card spending rose 10% year-on-year % had increased.
Overall, Bank of America customers spent $1.1 trillion from April through June, making it a record period for the bank, Chief Executive Officer Brian Moynihan said Monday, adding consumers are “pretty resilient.” .
Citigroup CEO Jane Fraser said the data gave little indication that the country was on the brink of a recession.
“It’s just an unusual situation to enter this troubled environment when you have a consumer in strong health,” Fraser said.
While this month’s data showed the US economy added more jobs than expected in June, it could still be on the brink of recession after GDP contracted in the first quarter. Continue reading
STRONG CREDIT QUALITY
Executives said consumer spending growth is likely to slow in the second half of the year on inflation as high interest rates and economic fears weigh on consumer confidence. They also noted that the effects of inflation can be seen in the data. Continue reading
“We are seeing the impact of inflation and higher discretionary spending across all income segments,” said Jeremy Barnum, JPMorgan’s chief financial officer. “The average consumer is spending 35% more on gas and about 6% more on recurring bills and other non-discretionary categories year-over-year.”
Wells Fargo said spending on discretionary categories like apparel and home improvement declined by double digits. Overall credit card spending, which was up 28% year over year, began to slow in May and June, said the bank’s CEO Charles Scharf.
For now, however, credit quality is still strong. Consumers, for the most part, continue to have more cash in their accounts and are still paying off credit card balances each month at a higher rate than before the pandemic, executives said.
For example, Moynihan said he saw “no deterioration” in customers’ creditworthiness and saw quite the opposite: The customer’s average FICO credit score for card loans was 771 in the second quarter, well above the threshold at which borrowers can be classified as a apply safe bet.
However, with spending habits changing, inflation and the end of government support brought on by the COVID-19 pandemic, some consumers are starting to see savings shrink, executives said.
“For certain customer cohorts, we’ve seen average balances steadily decline to pre-pandemic levels following the last federal stimulus payments early last year,” said Mike Santomassimo, Wells Fargo’s chief financial officer.
By and large, spending is growing faster than income and liquidity buffers are shrinking, though still above pre-pandemic levels, Barnum said.
Pressured by analysts for early warning signs of trouble, Barnum said loan defaults among low-income customers are also starting to rise while remaining below pre-pandemic levels.
“But I think it’s really still a big question whether that’s just normalization or whether it’s actually an early warning sign of deterioration,” Barnum said.
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Reporting by Elizabeth Dilts Marshall; Editing by Michelle Price and Deepa Babington
Our standards: The Thomson Reuters Trust Principles.
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