Are either right?
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Labels are a funny thing.
One would think all banks have a similar view on the economy’s future. But that’s not the case, especially as different banks have different customer groups.
In October, the two largest US banks reported quarterly earnings. During the earnings call, the CEO of both banks (Jamie Dimon of JPMorgan Chase and Brian Moynihan of Bank of America) provided an outlook on where they believe the economy is headed.
Surprisingly, they disagreed. At least the messages they relayed to investors were in disagreement.
Bank Of America
BOA is the second largest US bank. While they deal with investments, they are recognized for their large consumer segment.
On their quarterly earnings call, Moynihan, usually an optimist, highlighted the positives for the US economy. He was especially focused on the US consumer.
Moynihan remarked that while everyone has been talking about a recession and inflation for months, it hasn’t impacted consumers too much.
Moynihan sees consumer spending up 12% this year over last. Not only are people spending in higher dollar amounts, but they are also participating in more transactions, meaning people are spending on more things.
Additionally, consumers are spending on purchases that are not essentials. There is continued growth of spending on travel and entertainment. People would not increase their spending for these categories in a recessionary environment.
Moynihan also touched upon consumer deposit balances. These are above pre-pandemic levels, signaling that people have more money in their bank accounts. This is reassuring that spending can continue at the current level and that people have a cushion in case of job loss.
Lastly, he touched upon delinquency rates, which are the percentage of loans that are past due. While they have come up recently, they are still below pre-pandemic rates.
JPMorgan Chase
JPMorgan is the largest US bank, but it may be better thought of as an investment firm. They are concerned more about investments than consumers and checking accounts.
If Moynihan is a textbook optimist, Dimon is the definition of a pessimist. Dimon is not at all bullish on the economy going forward.
Months ago, he made a headline statement, saying that an economic hurricane was coming. During the recent quarterly earnings call, an analyst asked if he held the same economic hurricane view, or if things had gotten better or worse since.
Dimon replied that he still had the same view. He reiterated a similar message as Moynihan — the previous quarter’s numbers looked good, and consumers are still spending and have notable savings built up.
But he added that he does not expect it to last.
Dimon is worried that too many negatives (inflation, higher mortgage rates, energy prices, volatility, and war) are on the horizon. These could take a more significant toll on consumers in the next few months.
In short, he expects a recession in 2023. The depth of the recession, though, we do not know.
Final Thoughts
The interesting thing is that both Bank of America and JPMorgan Chase are seeing the same thing. And they are preparing similarly; both, along with other banks, have started setting aside hundreds of millions of dollars in case people start defaulting on their loans.
The difference between the two is the message they are relaying.
American consumers do appear to be financially healthy right now. And there are several positive economic indicators, such as low unemployment andhigh wage growth.
But on the flip side,inflation is very high and interest rates are rising.
Both CEOs are using the same data but painting vastly different pictures with it.
Individuals should always form their own opinions on what to expect in the economy. My own expectations are likely different than most others, including Dimon and Moynihan. There is always value in getting information from multiple sources and different perspectives on all issues.
$JPMorgan Chase(JPM)$ $Bank of America(BAC)$
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