What Bank Earnings Tell Us About How Consumers Are Faring With High Inflation, Recession Worries — ‘Not A Crack In Current Numbers’

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For all the concerns about pricking inflation and the possibility of a recession, just-released earnings reports from the big banks indicate that the wallets of many regular Americans are generally holding up as they face higher prices — for now.

Stock markets ended Thursday on an upbeat note, after starting lower and bouncing higher following September inflation data that came in hotter than expected.

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

It’s a reminder that measuring a person’s financial health is a complicated mix of mood and also dollars and cents. Also on Friday, consumer sentiment remained gloomy but improved slightly on the University of Michigan consumer confidence measure and data showed retail sales were flat in September.

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

“It is not a crack in the current numbers. It is quite predictable that it will test future numbers,” said the banker, who has raised concerns about a potential recession. For now, however, “balance sheets are very good for consumers,” he noted at one point.

At Wells Fargo, CEO Charlie Scharf noted that average deposit balances have declined from the second to the third quarter but are still above pre-pandemic levels. There is a segment of customers who are seeing their balances “steadily go down” 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, do not yet show elevated risk concerns,” she said.

Wells Fargo had stronger-than-expected third-quarter revenue to offset the error in analysts’ earnings estimates.

Challenges lie ahead for the UK and Europe, Citi Chief Executive Jane Fraser said, speaking hours after UK 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 are staying healthy,” Fraser said.

“Supply chain constraints are easing, the labor market remains strong, so it’s all a matter of what it takes to really rein in consistently high underlying inflation,” he added. Citi’s earnings exceed earnings targets.

To be sure, the numbers and conclusions on a big bank’s earnings call are just a glimpse of how people are doing financially. In fact, inflation rates at a four-decade high have become a key political issue in the midterm elections that are less than a month away.

It’s also worth noting that there are whole swathes of people who either don’t have a bank account or use a bank’s services very little. According to the Federal Reserve Analysis. But an estimated 13% are “underbanked” and another 5% are unbanked. Without access to traditional banking, these consumers, who tend to be lower-income and black and Hispanic, use services like check-cashing services and payday lenders, Fed data showed.

Black, Hispanic and Native American families have been especially struggling with the cost of inflation, research and surveys show.

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

Wells Fargo shares are down about 9% year-to-date, while JPMorgan and Citigroup shares are down about 30% and 28%, respectively, in that 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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