Big banks optimistic about economy despite Omicron slump

232
3
Big banks optimistic about economy despite Omicron slump

REUTERS Mike Segar File Photo

NEW YORK -- Top executives at the biggest U.S. banks have been optimistic about the nation's economic outlook this earnings season, pointing out that healthy consumers who have cash in the bank are eager to spend and also to borrow.

Consumer spending fell sharply during the outbreak as Americans feared the worst, hoarded cash and saved money by staying at home.

The government aid padded many Americans' bank accounts, and many used the cash to pay off debts at the same time.

The 1 and 2 largest U.S. banks, which reach around 140 million households, say consumers are in good shape, even though Omicron variant dampens spenders' enthusiasm last year.

Some analysts cautioned that inflation could cause further dampening of spending if it continues.

Bank of America, which provided the most comprehensive consumer spending data when it reported on Wednesday, said its 67 million customers spent $3.8 trillion in 2021, a 24% increase from 2019, the pre-pandemic benchmark.

That figure includes all the ways that the bank's customers spend money - credit and debit cards, ACH, wire transfers, cash, checks and money sent via platforms like Zelle.

Fourth quarter payments were up 28%, a record jump in the same period in 2019, as well as an increase in payments for the fourth quarter. Payments were up 11% as of January 17 compared to the beginning of January 2021, according to Bank of America.

Nearly all of the customers' account balances grew from June to December.

There is a lot of potential spending capacity left as average deposit balances continue to move up to the end of the year despite heavy spending, Bank of America Chief Executive Officer Brian Moynihan said on Wednesday.

Travel and entertainment spending went up 13% over the same period in the fourth quarter of last year, with the combined debit and credit card spending being 27% higher than the fourth quarter of last year, according to JPMorgan.

Credit card spending and median account balances for the fourth quarter were up 27% compared to pre-pandemic levels, according to Wells Fargo Co.

Auto loans and loans for tuition, medical care, vacations, and other purposes are part of the recovery of consumer loan balances across the industry from their COVID fall in the fourth quarter, according to Federal Reserve data.

Keith Horowitz, a Citigroup analyst, said that the results made us more optimistic about the loan growth trends.

There were signs that consumers have not fully returned to their pre-COVID spending patterns.

Spending on credit cards, for example, rebounded strongly in October and November, plateaued from early December and remain 7% below their pre-pandemic peak, Fed data shows.

In the fourth quarter, credit card balances for the fourth quarter were up 5% compared to the same period in 2020, but they were still 8% lower than pre-pandemic levels, because customers continue to pay down debt, according to JPMorgan.

Travel and entertainment credit and debit card spending saw a softer trend as a result of the Omicron wave, according to the bank. That looked to be in line with a softening of retail sales during December as consumers feared supply chain delays completed their shopping early, and Omicron stopped others from getting into stores.

Inflationary pressure was a factor in the uptick in consumer spending, according to Wells Fargo Chief Executive Officer Charles Scharf. That is a possible overhang for the consumer spending outlook, said David Hendler, bank analyst at Viola Risk Advisors.

He said that inflation could hurt people's ability to spend money because it's too expensive.