No Light At The End Of A Gloomy Personal Financial Tunnel?

Here at The Juice when we think of big banks we feel like George Costanza in a car dealership. We always worry they’re screwing us, be it with outrageous fees, low interest rates on our deposits or how they love to paint the rosiest of economic pictures even as there’s obvious pain on Main Street. 

Number one and two in our Trackstar top five most searched bank stocks love to do this. 

We recently detailed how JPMorgan Chase (JPM) CEO Jamie Dimon takes on the attitude of what’s good for JPM is good for America: 

Dimon, and other bankers, love to use the word normalize. Because the pandemic threw everything for a loop, they’re always making pre-pandemic comparisons. Makes sense sometimes. Feels super convenient at other times. 

Because, even amid these 2019 comparisons and talk of a resilient consumer, the big banks are keeping war chests to guard against delinquent debt:

While the banks might be fine, some cash-strapped and credit-abusing consumers clearly are not. The idea that JPM is building reserves to cushion themselves against bad loans amid rapidly increasing charge-offs tells you all you need to know. Similar story at Bank of America (BAC), who also increased reserves.

That was in April. Fast forward to August and the charge-offs continue to climb. 

The writing absolutely is on the wall. 

Let’s consider some data Bank of America just put out on the consumer in a report titled, Do deposit buffers still matter? With deposit buffers defined as extra money in your checking account that you can use for discretionary spending. 

Even though they’re late to this party we call reality, BofA is on the tip of telling like it is. But, not quite. As we’ll show by the end of today’s Juice, they still can’t quite bring themselves to do it. 

The bank makes this survey of the landscape (one The Juice has been outlining for well over a year now):

• Consumer spending remains robust. 
• At the same time, a growing number of consumers have, in Bank of America’s words, “perceptions around their finances” that “appear to have deteriorated somewhat over 2022-23.”
• Why? Because their pandemic buffers are slowly, but surely eroding amid inflation and high interest rates.   
• Still, even with these concerns, the buffers continue to provide support and drive spending, particularly among low-to-middle income consumers. 
• As the buffers continue to fade (and, in our words, disappear), improvements in the labor market (increased wages) will likely be the main hope to offset the loss of this spending cash.  

The data BofA uses to trace this timeline and make this prediction is equally as interesting as the prediction itself:

• Across income categories, median checking and savings account balances were 54% higher in July 2023 than they were at the same time in 2019. Go ahead and check yours. We’ll wait. 
• However, the aforementioned buffers peaked in the first half of 2021. They’re falling the hardest among low- and middle-income earners, who also experienced the greatest buffer increase during the pandemic. 
• Even so, the bank “believe(s) household spending should continue to receive support from the elevated deposit buffers relative to income for some time, though the size of this support is likely to diminish as deposit buffers trend lower.” 

Bank of America concludes by saying that they see the impact of the resumption of student loan payments being “small” and – 

Overall, as buffers fade and the savings rate rises, the outlook for the consumer will become ever more closely aligned with developments in the broader labor market and households’ labor income. BofA Global Research currently forecasts a fairly gradual slowdown in the pace of employment growth over 2023-2024. This should help keep consumer spending on a slower but continued upward trajectory over this period.

We disagree on one count and sort of agree on another. 

And they both have to do with the reality that we live in a haves and have nots economy with a bunch of people doing super well and an arguably larger bunch living hand to mouth, paycheck to paycheck or, even worse, not making ends meet at all. As in, they’re turning to credit cards, personal loans and falling behind on debt payments. 

Disagree on the student loan payment resumption. Forget the fact that this just means another expense added to the budgets of many cash-strapped consumers. Moody’s Analytics estimates the resumption will take roughly $70 billion annually out of the economy. This can’t bode well for “employment growth.” 

Sort of agree that, yeah, consumer spending might continue “on a slower but continued upward trajectory” into next year, but people on the privileged, high end of the economic ladder will be the ones to fuel and sustain it. Folks with good jobs and favorable housing situations, who, before, during and after the pandemic have always had money to blow. 

The Bottom Line: Walk through any major city or even suburb and you see it in action. The relatively rich, the dwindling middle class and the flat out poor living side by side. People dropping $14 for a cocktail at a bar people are sleeping in front of at night. The gainfully employed dropping $3,000 a month on rent or taking on out-sized mortgages as their neighbors struggle to make the rent and have zero hope of ever owning a home.  

This is not a good recipe for society. 

Well-heeled bankers tend not to see this toxic mix of ingredients – on the streets of America – as they package their data, primarily for the eyes of investors and their peers. Even when they express caution, they do it with an overarching optimism we wish we could get excited about. But, based on our reading of the data and observations on Main Street, we simply can’t.

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