What Bank Earnings Tell Us About How Consumers Are Faring With High Inflation, Recession Worries — “It’s Not a Crack in the Current Numbers”

Despite all the worries about pinching inflation and the possibility of a recession, just-released big bank earnings reports indicate that the wallets of many ordinary Americans are generally holding up as they do facing higher prices – for now.

Stock markets ended Thursday on a rosy note, after starting with a dip and rebounding with a surge following September inflation data that came in hotter than expected.

A day later, comments on third-quarter winning calls from JP Morgan Chase & Co. JPM executives,
+1.66%,
Wells Fargo WFC,
+1.86%
and Citibank C,
+0.65%
suggested that consumers still had their own rebound despite the pressure. The optimistic words, however, were cut with a dose of caution.

It’s a reminder that assessing someone’s financial health is a tricky mix of moods and also dollars and cents. Also on Friday, consumer sentiment remained gloomy but improved slightly in the University of Michigan consumer sentiment measure and data showed retail sales flat in September.

After JP Morgan’s third-quarter earnings and revenue beat estimates, an analyst on the call asked if there were any “cracks” emerging, including for people in retail banking.

There’s high inflation, rising interest rates, higher mortgage rates, questions about fuel prices and more, CEO Jamie Dimon said.

“It’s not a crack in the current numbers. It’s entirely predictable that this will weigh on future numbers,” said the banker, who expressed concerns about the potential recession. For now though, “balance sheets are very good for consumers,” he noted at one point.

At Wells Fargo, CEO Charlie Scharf noted that average deposit balances declined from the second quarter to the third quarter, but are still above pre-pandemic levels. There is a segment of customers who are seeing their balances “decline steadily” and their balances are now below pre-pandemic levels, he said.

“It’s important to note that this is still a small percentage of our total customer base,” he said. “Overall, our consumer deposit customer health indicators, including cash flow, payroll and overdraft trends, still do not show elevated risk issues,” he said. declared.

Wells Fargo posted stronger-than-expected third-quarter revenue to counter the loss in analysts’ earnings estimates.

Challenges await the UK and Europe, Citi CEO Jane Fraser said, speaking hours after British Prime Minister Liz Truss sacked her Chancellor of the Exchequer.

“The U.S. economy, however, remains relatively resilient. So while we see signs of an economic slowdown, consumers and businesses remain healthy,” Fraser noted.

“Supply chain constraints are easing, the labor market remains strong, so it’s all about what it takes to really get a grip on persistently high underlying inflation,” she added. . Citi earnings exceeded profit targets.

Of course, the numbers and takeaways that appear on a major bank’s earnings call are just a snapshot of people’s financial situations. Indeed, inflation rates at their highest level in four decades have become a key political issue in the midterm elections which will take place in less than a month.

It should also be noted that there are whole sections of people who do not have a bank account or who use the services of a bank very little. Most Americans are “fully banked,” meaning they have a bank account and don’t use alternative financial services such as payday loans, according to Federal Reserve analysis. But an estimated 13% are “underbanked” and another 5% are unbanked. Without access to traditional banking services, these consumers — who typically have lower incomes and are black and Hispanic — are using services such as check cashing services and payday lenders, according to Fed data.

Black, Hispanic and Native American families have been particularly grappling with the toll of inflation, research and polls.

The Dow Jones Industrial Average DJIA,
-1.34%,
the S&P 500 SPX,
-2.37%
and the Nasdaq Composite COMP,
-3.08%
were down on Friday after Thursday’s wild ride. Shares of JP Morgan, Well Fargo and Citi were up on Friday.

Wells Fargo shares are down about 9% year-to-date, while shares of JPMorgan and Citigroup are down about 30% and 28% respectively over the same period.

The Dow Jones is down about 18% while the S&P 500 is down more than 24% since the start of the year.

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