The U.S. consumer remains robust, indicating a smooth transition for the economy as major banks share their insights. JPMorgan Chase & Co. Financial Chief, Jeremy Barnum, asserts that the economic outlook now includes a significantly higher probability of a soft landing. This sentiment is widely agreed upon among industry experts.
JPMorgan Chase, Bank of America Corp., and Wells Fargo & Co. have expressed optimism about the economy in their recent statements. JPMorgan Chase, in particular, reported better-than-expected earnings and referred to the economy as “resilient.”
While the banks are confident about avoiding a recession, they are exercising caution by bolstering their reserves and implementing other necessary measures to protect their balance sheets. They remain attentive to the possibility of an economic slowdown, even without a more severe downturn.
The recent trend of consumers spending down their deposits is viewed as a “normalization” of the economy following massive economic stimulus and the impact of the COVID-19 pandemic.
Barnum emphasizes that although consumers may have less emergency savings and other financial resources, the December U.S. jobs report indicates continued economic strength.
“A robust labor market will invariably lead to strong consumer credit,” Barnum explains. “That’s our perspective on the current situation.”
Bank of America Sees Consumer Deposit Balances Holding Strong
Bank of America Corp. (BAC) CEO, Brian Moynihan, stated that consumer deposit balances remain 30% higher compared to pre-pandemic levels, despite a slight decline. According to Moynihan, consumers have displayed tremendous resilience, with their balance sheets generally in good shape. Despite the impact of higher interest rates, many consumers have fixed-rate mortgages and stable employment.
Moynihan also mentioned that overall consumer spending has shifted towards services and restaurants, with a decrease in spending on goods and retail stores.
Similarly, Wells Fargo & Co. (WFC) reported a 15% increase in credit-card outlays for the year 2023. Wells Fargo CEO, Charlie Scharf, stated that the financial health of their consumers remains strong. However, Scharf acknowledged that certain customer cohorts are experiencing more stress.
Looking ahead, Wells Fargo highlighted several factors that could affect their results, including interest rates, the shape of the yield curve, quantitative tightening, fiscal deficits, consumer behavior, and competitor behavior. Although Wells Fargo projected a decrease in net interest income for 2024, they did not provide a specific figure.
It is evident that both Bank of America and Wells Fargo anticipate stable consumer deposit balances and plan for potential challenges in the market.
Greg Robb contributed.