Is The American Consumer About To Crash? - InvestingChannel

Is The American Consumer About To Crash?

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The Best Thing You Can Do Before Making Any Investment

And it’s free! 

As The Juice shows today, you can learn a lot by listening to a company’s quarterly earnings conference call, and reading between the lines. Typically, the CEO, CFO and maybe another executive or two run down the specifics of the most recently completed quarter, provide some color around it, and answer questions from Wall Street analysts. 

In a minute, The Juice uses banks as an example. By checking in on a bank’s call, you can get a read not only on the specific firm, but often the overall economy. 

How To Access A Conference Call

Simply – 

  1. Google the name of the company and investor relations
  2. At the investor relations website, look for a link to earnings or events and presentations. 
  3. You might have to register – for free – to access some of these webcasts and transcripts. 

Most investor relations sites also detail other important company details, such as history, executive staff, and dividend information. 

This is a fine way to take the next step in conducting your own due diligence as an investor. 

Now, let’s do it together.

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Is The American Consumer About To Crash?

Key Takeaways:

  • Good news for banks – as predicted, net interest income continues to rise. 
  • However, banks, such as JP Morgan Chase, must prepare for potential debt defaults, hurting their top and bottom lines. 
  • This could portend trouble for consumers piling up debt.  


First, the good news. 

In March, The Juice indicated that banks would likely benefit from increases in net interest income (NII) due to rising interest rates. 

In May, we provided an update, showing that, indeed, NII was trending up at North America’s biggest banks. The Juice dug into bank earnings conference calls on the subject: 

NII came up 26 times on HSBC’s recent earnings call. And, like Wells, the bank is bullish. In fact, HSBC expects to see the impact of increasing NII into and beyond 2023 with near-term growth “in excess of sort of mid-single digits.” 

In July, the NII story continues to play out with all the major banks reporting robust, if not record increases. Makes sense given that the Fed has stuck to its gameplan. 

Now The Potentially Bad News

Let’s use JPMorgan Chase’s (JPM) recent earnings report to illustrate.

The bank’s lending activity remains strong with NII up 19% thanks largely to rising interest rates. 

Even with this anticipated good news, JPM stock took a beating on the report because it missed estimates on revenue and profit. It missed because regulators are making big banks set aside more money to cover the potential for loan defaults. This primarily due to a gloomy economic outlook, including a possible recession. 

So, on one hand, JPM CEO Jamie Dimon had good things to say about the health of the US consumer on the company’s earnings call

Consumers are in good shape. They’re spending money. They have more income. Jobs are plentiful. They’re spending 10% more than last year, almost 30% plus more than pre-COVID. 

The objective data, reported by JPM CFO Jeremy Barnum, backs this up: 

Spend is still healthy with combined debit and credit spend up 15% year-on-year. We see the impact of inflation and higher nondiscretionary spend across income segments. Notably, the average consumer is spending 35% more year-on-year on gas and approximately 6% more on recurring bills and other nondiscretionary categories. At the same time, 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. And with spending growing faster than incomes, median deposit balances are down across income segments for the first time since the pandemic started, though cash buffers still remain elevated.

That last sentence might subtly indicate the writing on the wall The Juice warned about in May – a concerning combination of increasing (record) consumer credit card debt and stagnant or dwindling income and savings. 

After reiterating that the present health of the consumer is good repeatedly, Dimon subtly referred to this writing on the wall on the call:

And obviously, when you have recessions, it affects consumer income and consumer credit.

Dimon says even if consumers get into trouble, JPM will be okay, as it has taken the safeguards to protect itself against defaults. 

Other banks, particularly Wells Fargo (WFC), report similar situations. 

Banks might be okay, however this isn’t necessarily the case for many consumers. Dimon’s subtle warning, the need for increased reserves, and the spending growing faster than incomes line tips us off, along with hard data from the Fed. 

In May, revolving consumer credit (credit cards) hit another record of more than $1.1 trillion. Part of the reason for this is the increased cost of just about everything, particularly gas, energy, and groceries. 

While the big banks might be prepared to weather this storm, it remains to be seen if the average consumer is. 

Are they playing chicken with their finances and about to get behind on their credit card bills? Or will they continue to remain healthy even in light of the continued and emerging economic threats? 

The Bottom Line: You can use the public information banks provide to get a sense of not only how well they’re positioned, but how consumers are faring now and how they might fare in the future. 

To this end, you can listen to company conference calls in just about any sector to get a read on the specific company as well as macroeconomic situations they’re tuned in to.

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