What Bank Earnings Tell Us About How Consumers Are Faring With High Inflation And Recession Worries — “There’s No Crack In The Current Numbers”

Despite all the worries about inflation and the possibility of a recession, just released earnings reports from major banks show that the wallets of many ordinary Americans can generally cope with higher prices – for now.

Equity markets ended Thursday on a positive note after starting with a tumble and rebounding on the back of hotter-than-expected September inflation data.

A day later comments on calls from executives at JP Morgan Chase & Co. in the third quarter. JPM,
Wells Fargo WFC,
and Citibank C,
suggested that despite the pressure, consumers still had their own bounce. However, the optimistic words were cut with caution.

It’s a reminder that assessing a person’s financial health is a tricky mix of sentiment and also dollars and cents. Consumer sentiment remained gloomy on Friday, but brightened slightly, the University of Michigan consumer sentiment gauge showed, and the data showed retail sales were flat in September.

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

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

“There is no crack in the current numbers. It’s quite predictable that this will weigh on future numbers,” said the banker, who has been vocal about potential recession concerns. For now, however, “the bottom line for consumers is very good,” he noted at one point.

At Wells Fargo, CEO Charlie Scharf noted that average deposits declined from Q2 to Q3 but are still above pre-pandemic levels. There is a segment of customers who are seeing their balances “steadily dropping” 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 overall customer base,” he said. “Overall, our consumer deposit health indicators, including cash flow, payroll and overdraft trends, still do not show heightened risk concerns,” he said.

Wells Fargo had stronger-than-expected third-quarter earnings to counter analyst miscalculations.

Britain and Europe face challenges, Citi CEO Jane Fraser said in a speech hours after British Prime Minister Liz Truss sacked her Chancellor of the Exchequer.

“However, the US economy remains relatively resilient. So while we see signs of an economic slowdown, consumers and businesses remain healthy,” Fraser noted.

“Supply chain restrictions are easing, the labor market remains strong, so it’s all a question of what it takes to really tame consistently high core inflation,” she added. Citi’s profits exceed profit targets.

Of course, the numbers and insights that surface on a major bank’s conference call are just a small glimpse into people’s financial health. Indeed, inflation rates, at four-decade highs, have become a key political issue in the midterm elections less than a month away.

It’s also worth noting that there are quite a number of people who either don’t have a bank account or use a bank’s services very little. Most Americans are “fully banked,” meaning they have a bank account and don’t use alternative financial services like payday loans, they said Analysis of the Federal Reserve. But an estimated 13% are under-banked and another 5% are unbanked. Without traditional banking access, these consumers — who tend to have lower incomes and are black and Hispanic — use services like check cashing services and payday lenders, the Fed data showed.

Black, Hispanic and Native American families are particularly vulnerable to inflation, research and polls show.

The Dow Jones Industrial Average DJIA,
the S&P 500 SPX,
and the Nasdaq Composite COMP,
were down on Friday after Thursday’s wild ride. JP Morgan, Well Fargo and Citi shares rose on Friday.

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

The Dow is down around 18%, while the S&P 500 is down more than 24% year-to-date.

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