JPMorgan Says US Consumer in ‘Great Shape’ but Macro Is Deteriorating

Reports of the death of consumer spending are greatly exaggerated — at least from the point of view of the nation’s largest lender, J.P. Morgan Chase.

But then again there’s some macro-related turbulence on the horizon, which has led the company to boost its reserves, a move that sent its stock down roughly 3% Thursday (July 14), extending a six-month, 35% self-off that has driven its shares down to a 20-month low.

In commentary of the way things stand, as CEO Jamie Dimon said on a second-quarter earnings call with analysts the same day, “the consumer right now is in great shape. Even if we go in a recession, they’re entering that recession with less leverage in far better shape than they did in’08 and ’09 and far better shape than they did even in 2020.”

Thus, as noted in the company’s earnings supplements, we’re seeing evidence of that resilience, as debit and credit card volumes were up 15% year over year to $397 billion.

Average deposits gained 13% year on year to $1.2 trillion.

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Drilling down a bit, card average loans through the quarter stood at $158.4 billion. At the same time, the card net charge-off rates were 1.47%, down from 2.24% last year. The company said it expects firm-wide net charge-off rates on cards to be less than 2% through the entire year.

As Dimon said on the call, “our credit card portfolio is prime.”

Chief Financial Officer Jeremy Barnum said on the call that “there continue to be positive trends in loan growth across our businesses, with average loans up 7% year on year.” With additional detail on consumer spending, average consumer is spending 35% more year on year on gas, and approximately 6% more on recurring bills and other nondiscretionary categories.

But, he said, “we have yet to observe a pullback in discretionary spending, including in the lower income segments, with travel and dining growing a robust 34% year on year overall.”

Card outstanding balances were up 16%, and revolving balances were up 9%.

Notably, auto originations were $7 billion, down 44% from record levels a year ago due to continued lack of vehicle supply and rising rates.

Dimon gave a nod to continued spending on technology, where the company has spent $100 million through the past few quarters, building certain risk and fraud systems “so that when we process payments on the consumer side, losses are down $100 million to $200 million. Volume is way up. That’s a huge benefit.”

Active mobile customers were up 11% in the latest quarter, to 47.4 million. Other materials released by the company showed that the total branch count in the company’s pantheon stood at 4,822, down from the 4,869 a year ago. Total active digital customers were 60.7 million, up 7% from the same period a year ago.

But there’s at least some caution in the mix. J.P. Morgan maintained a $1.1 billion provision for credit losses in the quarter, including a $428 million reserve build taken in tandem with some deterioration in the macroeconomic outlook.