By Utkarsh Shetti
July 15 (Reuters) – Wall Street’s largest banks struck a reassuring tone on U.S. consumer health, citing steady spending, rising loan balances and healthy credit quality that suggest households remain resilient despite growing economic uncertainty.
The U.S. consumer is on a sturdy footing even as borrowing costs remain elevated, supported by a still-strong labor market and wage growth, although lower-income households are grappling with mounting cost pressures.
As such, consumer loan balances have continued to grow modestly, with credit-card portfolios emerging as a key driver, while credit quality remains broadly stable.
“The U.S. economy has proved more durable than expected,” Bank of America CEO Brian Moynihan said on a call with analysts on Tuesday, adding that spending had recently expanded and continued to “outperform” expectations.
The confidence comes at a time of increasing caution over the impact of the U.S.-Iran war, which has driven up oil prices and clouded the outlook for interest rates due to fears of surging inflation.
A prolonged conflict threatens to weigh on household budgets by driving up the prices of essential goods and squeezing discretionary spending.
The Consumer Price Index increased by a still-high 3.5% in the 12 months through June after surging 4.2% in May, which was the largest year-on-year rise since April 2023, data from the Labor Department’s Bureau of Labor Statistics showed.
RESULTS MIXED
While consumer loan growth across JPMorgan, Bank of America and Wells Fargo was broadly mixed, credit card balances rose at all three lenders.
JPMorgan, the largest U.S. lender, reported a 7.3% rise in overall period-end credit card loans in the quarter to $249.9 billion, while consumer balances excluding credit cards fell 1% from a year ago.
Bank of America, which reported a 3.2% increase in overall consumer loans, posted a 4.4% jump in credit card balances. Home equity and residential mortgage balances were also up slightly.
“People don’t buy a home and take on that type of debt unless they are feeling more secure in their income prospects,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
Wells Fargo’s total consumer loan balances were up 5.4%, underpinned by a 32% rise in auto loans. Credit card balances jumped close to 5.6%, while residential mortgages posted a modest fall.
“Tying this into the health of the economy and the U.S. consumer, clearly they are both strong by the numbers,” said Brian Mulberry, chief market strategist at Zacks Investment Management, which owns shares of some U.S. big banks.
CREDIT CARD BALANCES ROBUST
Rising credit card balances are typically a boon for large banks because they generate outsized interest income and fee revenue, making cards one of the industry’s most profitable lending businesses. They can, however, also be an early sign of pressure on household budgets.
JPMorgan CFO Jeremy Barnum outlined in the company’s earnings call on Tuesday that spending had remained robust across income segments, while delinquencies came in lower than expectations.
Despite some consumers’ reliance on credit to manage higher living costs, banks have said employment levels and household balance sheets have generally remained healthy.
U.S. job growth slowed sharply in June, with nonfarm payrolls increasing by 57,000 jobs, well below expectations for a 110,000 rise. Employment gains, however, averaged 111,000 per month in the second quarter, far more than the 34,000 during the same period last year.
“On the consumer side, it really is good. The delinquency trends are better than we modeled most months… overall, you’re seeing really good performance,” Wells Fargo CFO Michael Santomassimo told analysts.
(Reporting by Utkarsh Shetti in Bengaluru; Editing by Anil D’Silva)
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