Fincredible MacroTalk October 20: Macroeconomic Insights
Macroeconomic insights from earnings calls of $GS $JPM $C $WFC $PNC $USB $MS $BK
Earnings season kicked off last week and with that, we got several earnings reports from major banks. These banks have a grip on the economy and their earnings calls provide a lot of insights relevant to investors. Among the topics discussed these past two weeks we have: economic growth, inflation, consumer spending, loan growth, and more.
In this post we’ve curated and highlighted the most relevant quotes regarding those topics. Quotes are sourced from Fincredible.
Economic Growth - GDP
Expectations for the US economy were mixed among bank executives. JPMorgan, Wells Fargo, and PNC expect the US economy to overcome the Delta variant and supply chain disruptions, and cited the strong consumer spending and balance sheets as a cause for optimism.
On the other hand, Citigroup and Goldman cited several potential headwinds for the U.S. economy: inflation uncertainty, Delta variant, federal debt ceiling, supply chain issues, U.S.-China relationships, and a Chinese economic slowdown.
“There are a number of emerging areas of uncertainty we're paying close attention to: first, the trajectory of inflation, particularly wage inflation in the short term. Second, there remains significant uncertainty around the Delta variant. Third, there's ongoing political debate in the U.S. over economic policy, including the potential for additional infrastructure deals, the longer-term extension of the federal debt ceiling and tax increases. And fourth, the U.S.-China relationship remains complicated.
Taken together, these items have the potential to be a headwind to growth. As further indicated by the downward revision and our economists' U.S. GDP expectations, earlier this week.”
David Solomon, CEO
“Now all that said, growth has come off the ball it had. We're watching 3 things very closely: the slowdown in China and its impact on global growth; inflation and supply constraints in labor, materials and energy; and finally, what happens next with the U.S. debt ceiling negotiations These are also the issues which repeatedly surface in our conversations with clients.”
Jane Nind Fraser, CEO
“There's not one company now that's not working aggressively to fix the supply chain issues. Sales are still up, credit card, debit card spend still up, consumers in great shape. And capitalism works. I doubt we'll be talking about supply chain stuff in a year.”
Jamie Dimon, CEO
“As we look forward, while there certainly are risks that remain, including the latest wave of COVID infections, the recent U.S. fiscal policy stalemate and inflation concerns, the outlook for the economy is promising. Consumers' financial condition remains strong with leverage at its lowest level in 45 years and the debt burden below its long-term average. Companies are also strong as well.”
Charles Scharf, CEO
"In regard to our view of the overall economy, after somewhat slower growth during the third quarter of 2021 due in part to the delta variant and supply chain problems, we expect GDP to accelerate to above 6% annualized in the fourth quarter."
Robert Q. Reilly, CFO
Consumer Spending and Balances
According to banks, consumer spending, balance sheets and deposits continue to be strong. Even hard hit sectors like travel and entertainment are seeing higher consumer spending relative to pre-pandemic levels.
“Combined credit and debit spend was up 24% versus the third quarter of '19 and in line with last quarter. Within that data, travel and entertainment spend was up 8% versus 3Q '19 and very closely track the patterns of the Delta variant within the quarter, softening in August and early September and reaccelerating in recent weeks.
Jeremy Barnum, CFO
“U.S. branded cards purchase sales are well above 2019 levels. And acquisitions across branded cards, Mexico and the Asia hub are also all now at or above pre-COVID levels.”
Jane Nind Fraser, CEO
“We continue to see that our customers have significant liquidity and consumers are continuing to spend. While lower than the peak in March, our consumer customers' median deposit balances continued to remain above pre-pandemic levels, up 48% for customers who received federal stimulus and 40% higher for those who did not receive federal aid.
Weekly debit card spend during the third quarter was up every week compared to 2019 and in the week ending October 1 was up 14% compared to 2020 and 26% compared to 2019. Areas hardest hit by the pandemic have recovered, including travel, up 2%; entertainment, up 39%; and restaurant spending, up 20% during the week ending October 1 compared with 2019.
Consumer credit card spending activity continued to increase, up 18% in the third quarter compared to 2019 and 24% compared to 2020. During the week ended October 1, travel-related spending, which was hardest hit during the pandemic, was up significantly from 2020, but remains the only category that is not yet fully rebounded to 2019 levels, still down 8% compared to 2019.”
Charles Scharf, CEO
“In the third quarter, sales were about almost 5% higher than 2019 in terms of merchant processing. And if you end up looking at credit debit card, a 20-plus percent above where it was in 2019. So those have made really nice recoveries.
I'd also kind of keep in mind that when you end up looking at a merchant as an example, airline, travel entertainment is still down quite a bit. And probably, I would say, flattened a bit in the third quarter simply because of the delta variant. But as we kind of think about going forward and as the delta variant kind of subsides a bit, we would expect that to start to accelerate again.
We end up looking at the card business, as I said, credit card and debit card business, the sales volumes have been quite strong relative to 2019, and that's driven by consumer spend.
…
And then the last thing I would just kind of talk about is on the corporate payments side of the equation, it's pretty much at 2019 levels, but the travel and entertainment or the T&E spend is still about 50%, 55% below 2019, and we would expect that to continue to kind of normalize”
Terrance Dolan, CFO
“And consumer balance sheets remain unusually strong on the back of the increasing consumer net worth during the pandemic.”
Jane Nind Fraser, CEO
Inflation
In the recent earnings calls, inflation was not a hot topic. In fact, one of the few comments that included concrete comments on inflation was the following.
“It's been 4% now for the better part of a couple of quarters. And in my view, unlikely to be lower than that next quarter or the quarter after that. The only question is, does it start to ease after that with supply chains and wages, more people looking for work or does it continue to go up? And of course, we prepare for probabilities and eventualities. And one of those probabilities is that it might go higher than people think that they'll have to tamp down. I doubt that will happen before late 2022.”
Jamie Dimon, CEO
FED Tapering and Rates
The consensus seems to be that FED tapering will start soon, probably by the end of this year, and that rates will start climbing in 2022. The start of tapering and the raising of rates will likely have significant effects in the stock market.
"We do expect the Federal Reserve will begin tapering soon, and that will be followed by increasing rates in 2022."
James Patrick Gorman, CEO
“And so I think if you look at what's happening in inflation and with tapering coming and we still think that there's more risk to upside on rates than there is downside at this point. And so we're still being patient as we sort of look at our redeployment there.”
Michael Santomassimo, CFO
"We also expect the Fed funds rate to remain near 0 for the remainder of the year."
Robert Q. Reilly, CFO
"And as the Fed begins to taper and we all think they will taper soon, I think that does help in terms of kind of putting a lid to a degree on the growth of deposits from here"
Emily Hope Portney, CFO
Loan Growth
Consumer and business loans are a key indicators of the health of the economy. When consumer loans start rising, it’s usually an indicator that demand will be strong. Similary, when business start asking for more loans, it’s usually because they want to expand capacity or need more working capital to meet additional demand.
"And while loan growth remains muted, we see a number of indicators to suggest it has stabilized and may be poised to begin more robust growth across the company and particularly in card."
Jeremy Barnum, CFO
“Moving to Home Lending. Average loans were down 6% year-on-year, but up 2% quarter-on-quarter with portfolio additions now outpacing prepayments. It was another strong quarter for originations totaling nearly $42 billion, up 43% year-on-year, reflecting record purchase volume and share gains in the refi market.
And in Auto, we had $11.5 billion of originations, second only to last quarter's record. So overall, loans ex PPP were up 3% quarter-on-quarter on the growth in Card and Home Lending, I just mentioned.”
Jeremy Barnum, CFO
"Commercial Banking loans were up slightly at the end of the third quarter, while line utilization was stable at historic lows."
Charles Scharf, CEO
“Our mortgage originations declined 2% from the second quarter with correspondent originations growing 2%, which was more than offset by a 5% decline in retail. We currently expect our fourth quarter originations to decline modestly, given the recent increase in mortgage rates and the typical seasonal trends in the purchase market.
Despite strong consumer demand for autos, inventory shortages are putting downward pressure on industry sales and driving higher prices. The competitive environment has remained relatively stable, and we've had our second consecutive quarter of record originations with volume up 70% from a year ago.”
Michael Santomassimo, CFO
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