Consumer Spending isn't Taking a Summer Vacation

THE ECONOMY IS FINE!

Ok, maybe not. But at the very least, it's not tipping over.

The big banks reported Q2 earnings over the past few days and their statements around consumer health and spending allowed us to clear a few psychological hurdles.

(Unrelated: I had to google the word "psychological" and stare at it for 5 minutes before I could spell it.)

The banks told us consumer spending isn't taking a summer vacation.

From Bank of America, payment spend among their customers was up 13% versus last year. And spending with credit and debit cards increased versus 2021 & 2019 levels across every major category they track.

BofA's CEO Brian Moynihan had this to say:

"What we're seeing in our consumers today ... two weeks into July so far, they've spent 11% more money than they did last year and transactions are up 6-7%. Right now, we don't see it" while referencing the possibility of a recession.

He added, “Despite the worries of a slowing economy…our customers’ resilience and health remains strong."

To be fair, it would be a PR nightmare if he said "our customers are not resilient, they're poor, and they mostly suck". Point being, we don't have to fall in love with those comments, rather they're simply an encouraging sign.

In addition to spending, credit quality remains in good shape. There's been no slippage in creditworthiness across credit cards, auto loans, and housing.

And consumers continue to pay down debt. Credit card balances 30+ days past due remain lower now than pre-pandemic.

BofA wasn't the only bearer of good news. Their banking peers had similar things to say.

Citibank stock was up 14% last Friday after earnings, its best one day pop in more than a decade. Jane Fraser, CEO of Citibank, mentioned on the conference call:

"Little of the data I see tells me the U.S. is on the cusp of a recession. Consumer spending remains well above pre-COVID levels with household savings providing a cushion for future stress. And as any employer will tell you, the job market remains very tight. Similarly, our corporate clients see robust demand and healthy balance sheet with revenue softness attributed to supply chain constraints so far. So, while a recession could indeed take place over the next two years in the U.S., it's highly unlikely to be a sharper downturn as others in recent memory."

And if or when that recession comes, she added:

"And what matters for a bank heading into recession? Capital, liquidity, credit quality and reserves. We feel very good about all four of them. Very strong capital ratios. Total liquidity resources just shy of $1 trillion. Over 80% of our corporate exposures are investment-grade. Our consumer clients are heavily prime."

Tell 'em Jane!

Jamie Dimon and JP Morgan reported much of the same last week. They're operating in "business as usual" mode.

Wells Fargo and Morgan Stanley were also upbeat on things and if we're being honest I didn't pay any attention to anything Goldman said. So if their ship is taking on water, I missed it.

None of this means things are perfect. The future could look much different six months from now. But for the time being, U.S. consumers are living their best life despite an ugly economic backdrop.