Written by Michelle Price and Nupur Anand
NEW YORK (Reuters) – U.S. consumers remained resilient with strong spending in the third quarter, two of the country's largest financial institutions said on Friday. However, there are signs that some Americans are unable to bear the loss of income due to rising inflation.
JPMorgan Chase and Wells Fargo's strong earnings and positive management comments come as rising borrowing costs weigh on consumers and the economy weakens, even though JPMorgan has increased its provisions for soured loans. This should further allay investor concerns that the economy is pushing the economy to the top of the recession.
JPMorgan's stock rose nearly 5% in afternoon trading, while Wells Fargo's stock rose more than 6%.
“Overall, we see spending patterns as being somewhat robust,” said Jeremy Burnham, chief financial officer at JPMorgan, the nation's largest financial institution and a bellwether for the U.S. economy, adding that the post-pandemic recovery, when Americans splurged, has been slow. He added that spending has normalized since then. For traveling and eating out.
Weak job market data had heightened concerns that the Federal Reserve's interest rate hikes aimed at curbing inflation could push the United States into a recession or “hard landing.”
But Burnham told analysts that spending patterns are “consistent with the view that consumers are on strong footing, with a strong labor market and the current economic climate of a kind of 'no-landing' scenario.” “This is consistent with the central case.”
Wells Fargo Chief Financial Officer Michael Santomassimo told reporters that spending on credit and debit cards is down slightly from earlier this year but remains “pretty strong.” .
The bank reported that debit card purchases and transactions increased by nearly 2% year over year, and credit card POS transactions increased by 10%. At JPMorgan, debit and credit card sales increased 6% year over year.
The full picture of the market will become clearer when the nation's other two largest consumer banks, Bank of America and Citigroup, release their reports next week and release retail sales data. Several investors said Friday's results were a positive sign so far.
“What JPM and Wells are reading about consumers is, in my opinion, very healthy,” said Dave Wagner, head of equities. “That looks healthy for the economy as a whole.” at Aptus Capital Advisors, which owns several bank stocks.
Still, Santomassimo cautioned that the cumulative effect of higher inflation is putting a strain on lower-income consumers, and the bank is watching to see if that pattern spreads to higher-income customers. did.
Consumer sentiment continued to decline in October as dissatisfaction with high prices remained, a University of Michigan survey showed on Friday.
“The overall average looks good, but I think it's more skewed toward higher-income and affluent consumers,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest in Elmhurst. said. , Illinois.
“Things are getting a little tougher for people at the bottom. Delinquencies and car loans are going up. Savings are going down and credit card balances are going up,” he added.
Both banks are setting aside cash to protect against potential loan defaults. JPMorgan set aside $3.11 billion, a sharp increase from the $1.38 billion it set aside a year ago, mainly due to potential losses on credit card loans. Meanwhile, Wells Fargo set aside $1.07 billion, down slightly from the $1.2 billion it set aside at this time last year, although it said it increased its reserves for credit card loans due to higher balances.
The Philadelphia Fed said Wednesday that credit card delinquencies have soared for more than a decade, raising concerns that Americans are being overburdened, but that conditions improved in the second quarter. announced.
The Philadelphia Fed said it was too early to declare a tipping point in credit performance, but impairments on borrowings with terms ranging from one month to longer were the largest drop in three years.
Barclays analysts said in a note Thursday that they expect “credit card loan losses to continue to normalize, but at a slower pace than last month.”
(Writing by Michelle Price; Reporting by Niket Nishant, Manya Saini, Nupur Anand, Nivedita Bal, Saquib Ahmed, Saeed Azhar, Tatyana Bautzer; Editing by Megan Davis, Nick Zieminski, Jonathan Otis)
