American consumers say they don’t feel good about the economy. But they have a curious way of showing it.
Pessimism about the economy has risen due to soaring inflation and falling household incomes since pandemic-related stimulus programs expired. But the latest round of bank earnings shows that apprehension hasn’t stopped Americans from reaching for their credit cards.
Spending in the first quarter was up 23% on Citigroup Inc. credit cards, compared to a year ago. Spending rose 29% on JPMorgan Chase & Co. cards and 33% on Wells Fargo & Co. cards. Bank of America Corp., another major card issuer, is expected to report first-quarter results on Monday.
Consumers are sending mixed signals about their confidence in the economy, Goldman Sachs Group Inc. chief executive David Solomon said Thursday.
In some ways, the quarter was a return to pre-pandemic shopping habits: At JPMorgan, spending totaled $236.4 billion, 37% higher than the first quarter of 2019 and 59% higher than 2020 Bank executives pointed to rising spending in categories such as travel, entertainment and restaurants as evidence of consumer strength. On Chase Cards, travel and dining spending increased 64% in the first quarter.
“People like to dress up to go back to dinner at restaurants,” Citigroup CEO Jane Fraser said Thursday.
Part of the increase is due to rising costs. Consumer prices rose 8.5% in March from a year earlier, the highest rate in decades. Supply chain challenges, strong consumer demand and rising energy costs have driven up prices for basic groceries and air fares. Gasoline spending rose sharply in March after Russia invaded Ukraine.
Additionally, borrowers have been slower to pay off their balances in recent months. Credit card loans were up 15% from a year ago at JPMorgan, 7% at Citigroup and 14% at Wells Fargo. This could be a sign that more people have exhausted the savings they accumulated during the pandemic.
Still, inflation does not appear to be weighing on household balance sheets yet, JPMorgan Chief Financial Officer Jeremy Barnum said on a call with analysts on Wednesday. Crimes remain below pre-pandemic levels. Even low- and middle-income households are not of concern to the bank, Mr Barnum said.
Jamie Dimon, the bank’s CEO, said he wouldn’t normally expect net charges, the amount the bank doesn’t expect to collect, to fall below 2.5%. It has now been below 1.5% for three consecutive quarters.
“The dumps are extraordinarily good,” he said, “in fact, much better than they should be.”
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