Banking analysts and investors worried about spending outlook as inflation risks rise

NEW YORK, March 29 (Reuters) – Analysts and investors at major Wall Street banks are eagerly awaiting any information from executives on the outlook for consumer spending and borrowing, a key source of revenue, when first-quarter results will be unveiled next month.

U.S. consumer spending has been rising for months as the country emerges from the COVID-19 pandemic and Americans make up for lost time traveling, shopping and dining out, according to bankers and economists.

Despite the momentum, there are signs that the end of pandemic-era financial aid and inflation hovering at 40-year highs, exacerbated by Russia’s invasion of Ukraine, are beginning. hurt the finances of low-income Americans.

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Executives from JPMorgan Chase & Co (JPM.N), Bank of America (BAC.N) and Wells Fargo & Co (WFC.N), which together finance about half of all US households, have been saying for months that the American consumer is healthy, spending more and using account balances, which have increased during the pandemic, to pay off credit cards and other debts. Read more

So far, they say, consumer spending appears to be holding up. But the prospects for revenue growth and

Bank of America, the second-largest U.S. bank, said customers spent $63 billion in February on debit and credit cards, up 21% from a year ago, with more spending high for travel, restaurants, public transport and gym memberships.

“We saw a strong continuation of payment and spending trends in February,” said Mary Hines Droesch, head of consumer and small business products at Bank of America. “(The data) suggests that more consumers are returning to the office and resuming more in-person activities.”

U.S. consumer confidence rebounded from a year-long low in March, while retail sales in February, the most recent month available, rose more than 17% from a year ago, data show. US Department of Commerce data. Read more

“Despite record inflation and an 11-year low in consumer confidence, U.S. consumption, particularly retail sales, has proven resilient,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.

Consumer behavior was supported by a tight labor market, excess savings and “strong balance sheets for households”, she said.

More data will be available on April 13 when JPMorgan kicks off earnings season, followed by Wells Fargo on April 14 and Bank of America on April 18.

As people return to old spending habits – confidence in their prospects for significant income growth over the next two years is at an eight-year low, according to data from the University of Michigan, and economists say real incomes, a more specific measure of wealth, are cratering.

Goldman Sachs economic analyst Jason Briggs expects real household income to rise only 0.5% in 2022, and bottom-earner incomes to fall this year due to the inflation and the end of government aid.

“The main impediment to real spending growth in 2022 is very weak real income growth,” Briggs wrote in a note to investors last week.

One area of ​​lending – cars – is seeing an increase in delinquencies from borrowers with the lowest credit quality.

Auto loan delinquencies rose in February for the ninth consecutive month, led by subprime borrowers, according to a report by Manheim Consulting. The report also found that the percentage of subprime auto loans in serious default was at its highest rate since 2006, although the proportion of overall loans that are subprime hovered near record highs.

The New York Federal Reserve last week identified another possible reason for the trouble on the horizon: 37 million federal borrowers will have to start making payments again starting in May.

Payments on federal student loans have been suspended since March 2020, when the government temporarily placed these loans on administrative forbearance.

Meanwhile, the 10 million borrowers with private student loans who had to keep making payments “struggled with their debt,” New York Fed research analysts wrote.

“The difficulties these borrowers are having in managing their (private) student loans and other debts suggests that (federal student loan) borrowers will face increased delinquencies once forbearance ends and payments resume,” wrote New York Fed researchers in a blog post.

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Reporting by Elizabeth Dilts Marshall Editing by Matt Scuffham, Bernard Orr and Mark Potter

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