See what data from the JPMorgan Chase tells us about the consumer situation

As inflation soars and the Federal Reserve plans to raise its overnight benchmark interest rate, the federal funds rate, several times this year, investors are closely monitoring the consumer’s financial health. Not only are many banks and financial technology companies doing a lot of business with consumers, but consumer health is vital to the health of the economy because consumers buy goods and services, which drives business, and they spend in many other ways. . Recently, JPMorgan Chase (JPM -0.93% ) announced its first quarter earnings report. As JPMorgan Chase is the largest bank in the country, it has good management of the state of the economy. See what the new data from the largest bank in the country tell us about the consumer situation.

Expenditures are slowing down, credit remains healthy

A good way to gather consumer knowledge is to look inside JPMorgan’s Consumer and Community Banking department. This department is one of the main activities of the bank, providing mortgages, car loans, credit card loans and other consumer and bank loans for small businesses.

JPMorgan Chase Consumer Loan by category.

Data source: JPMorgan Chase. Chart by author.

Loans in almost all categories of JPMorgan consumer loans were on the rise at the end of 2021. However, either due to rising inflation or the Fed’s planned rate hikes, consumer spending appeared to decline in the first quarter of 2022. Car loans were almost stable, credit card loans – which had risen in the bank in the previous quarter – fell by 1% in the first quarter, mortgages fell by 5%, and consumer and business bank loans fell by about 7%. Higher interest rates and future interest rate hikes probably played a big role in this sudden drop. Earlier this month, data showed that mortgage applications had fallen by more than 40% since April 2021, as the mortgage rate on a 30-year fixed mortgage increased by 4.7%.

The good news, at least for now, is that the quality of consumer credit is still quite strong. In none of the previous categories of consumer loans has there been a large increase in net charges, which is unlikely to be collected and is a useful measure for assessing possible and potential loan losses.

JPMorgan Chase Net charge rate per loan category.

Data source: JPMorgan Chase. Chart by author.

Net car loans and mortgages as a percentage of total loans in each category are still extremely low. Credit card charges have started to move higher, but at 1.37% they are still extremely low. The net charges of banking consumers and businesses moved from 0.91% to 1.07%, which is a decent increase, but the volume of loans is also very low in this category, probably slightly increasing the traffic. If you look at the delinquency trends of more than 30 days in the car, mortgage and credit card categories, they are even better, with mortgage and car arrears down slightly from the fourth quarter of 2021 and credit card arrears slightly higher.

What to expect

With the Fed announcing that it will raise the federal funds rate in each of its next six sessions, the consumer is in the throes of a storm and, according to JPMorgan data, the consumer appears to have slowed down on inflation or prepared for what will follow.

However, while JPMorgan Chase CEO Jamie Dimon expressed concern for the future, he said the consumer is still in good shape at the moment: “The consumer has money. He is paying off his credit card debt. Trust is not high, but the fact [is] that they have money, they spend their money. They still have $ 2 trillion in savings and cash accounts in the business[es] It’s in good condition. House prices are high. The credit is extremely good. “

There is no guarantee that the economy will sink into recession. After all, the consumer is healthy, inflation could peak and the Fed may slow down its plans to raise interest rates. But as consumer spending begins to slow down slightly and the consumer moves to a much harsher environment, the financial health of the consumer will be an important factor for markets.

This article represents the opinion of the author, who may disagree with the “official” position of setting up a Premium Motley Fool consulting service. We are motley! Challenging an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier and richer.

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