MW Banks see cracks in the economy as consumers blink at inflation, tariffs

By Steve Gelsi

A JPMorgan analyst breaks down comments from banks about 2025, as financial cushions flatten for lower-end consumers

JPMorgan Chase banking analyst Vivek Juneja said Friday that banks could feel the crunch from U.S. consumers - especially lower-income consumers - as the first quarter of 2025 wraps up in the next couple of weeks, while overall credit strength remains robust for the sector.

"Consumers financial positioning especially at the lower end is being eroded by the impact of cumulative inflation with threat of further erosion with impact of tariffs and policies as well as layoffs," Juneja said in a research note. "The cushion (deposits less spending) is less than prepandemic levels for lower income and/or mass market segment - this will limit their ability to withstand a slowdown."

His summary of bank comments issued in recent weeks provided a glimpse of the economic conditions facing the financial sector as it wraps up the first quarter.

The big banks will issue profit updates, starting on April 11 for JPMorgan Chase & Co. $(JPM)$, Wells Fargo & Co. $(WFC)$ and Morgan Stanley $(MS)$; April 14 for Goldman Sachs Group Inc. $(GS)$; and April 15 for $Citigroup Inc(C-N)$. (C) and $Bank of America Corp(BAC-N)$. $(BAC.SI)$

Citing comments on some cracks in the U.S. consumer by Walmart Inc. $(WMT)$ and others in recent weeks, Juneja said spending data has been mixed.

Credit-card spending among Chase customers slowed to about 2.6% growth in February, from 3.7% to 4% between Nov. 1 and Jan. 30, but it's too early to see how those trends continued in March.

Spending has shifted to the wealthier consumers, which remains relatively healthy.

Delinquencies are rising on government student loans, and Federal Housing Administration 30-89 day delinquencies on mortgages are up sharply to 9% - well above the 2012-19 levels of 5% to 7.6%.

Credit-card delinquencies have been " flattish" recently and are highest at U.S. Bancorp $(USB)$, Wells Fargo, and Citi due to those banks' large exposure to private-label cards, he said.

"Delinquencies seem to be flattening and increase in net charge-offs has been slowing but higher tariffs and layoffs could change this," Juneja said.

Overall, bank stocks have sold off about 15% from their recent peak in the face of jitters about an economic slowdown, as well as uncertainty about policies and their implications, he said.

This is all driving a drop in consumer confidence.

"The pendulum had swung sharply in favor of banks post-elections and now has swung very sharply the other way as these sentiments tend to go in extremes," Juneja said. "Clarity on policies and signs of meaningful reduction in cumulative inflation in essentials (food, healthcare, etc.) will be needed to restore consumer confidence, not just couple of additional rate cuts."

Even with the selloff, however, money-center banks are trading at 1.5 times the price to total book value on average. This is "a tad" above the long-term average of 1.3 times, he said.

-Steve Gelsi

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March 14, 2025 09:07 ET (13:07 GMT)

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