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If everyone feels so miserable, why do they seem to be out having a good time? This is the puzzle in comparing US second-quarter bank results with terrible readings in recent consumer sentiment surveys.
Citigroup Inc.’s customers are spending freely on restaurants and holidays, which drove credit card volumes up 18% compared with those in the period a year earlier, the bank said in its results Friday. Wells Fargo & Co. similarly called out travel and entertainment in the spending growth on cards in its results. JPMorgan Chase & Co. said much the same the day before.
Some discretionary spending is down: Wells Fargo said debit card holders were buying fewer clothes and doing less home improvement. High inflation is also a factor, Mark Mason, Citigroup’s chief financial officer, noted. Things like fuel and flights just cost more. But as Mason said, the feel-good leisure spending is hard to square with worries about rising costs of living and the sharp declines in consumer expectations about income and employment in Conference Board surveys this year.
Maybe people are just having some nihilistic fun before the storm hits. Wells Fargo said spending slowed a bit in May and June, so some consumers might be wrapping things up and heading home already. But all three banks also said consumers still have good cash buffers and the flexibility to spend on the things they want. None of the banks are yet seeing any signs of stress among borrowers, either. Provisions against bad loans are rising, but a lot of that is due to growth in lending, not because more people are late in making repayments.
Lower-income households are likely suffering more, and the pain from gas and grocery costs will keep getting worse for them. But that’s more a problem for society than it is for banks. Low-income borrowers just aren’t a big part of the lending books at banks like Wells Fargo, Mike Santomassimo, its chief financial officer, said.
In terms of what could change, the key factor to watch is employment. Bank results have raised warning flags in two areas that investors should keep an eye on: construction and highly indebted companies.
Wells Fargo reported a collapse in mortgage-related business, with second-quarter revenue down 53% compared with the same period last year and down 35% from the first quarter.
—Bloomberg