JPMorgan Reports Earnings- Bell Weather for US Economy

JPMorgan, a bell weather bank in the US, reported that earnings declined for Q3?2024. JPM in its earnings release noted that, "The US economy remains strong for both consumers and big companies". The bank highlighted several positive trends: consumers continue to spend, big businesses are confident, and new job creation remains strong.?Ironically in the Wall Street Journal right below the JPM earnings announcement, there was an article about Boeing cutting 17K workers. ?JPMorgan's positive outlook may be a bit rosy. The truth about the economy is probably somewhere in between.

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Consumer Spending:

Consumer spending has been strong, but the real question is are consumers spending more and getting less and even more importantly, where are they getting the money from? Home equity loans increased $4B in Q3 2024 which was the ninth consecutive quarter of increases. Credit card balances are currently totaling $1.1 trillion and in the most recent quarter rose $27B. Auto loans increased $10B to 1.6T. No matter how you slice it, the consumers balance sheet is weakening with higher debt levels, lower cash reserves and in some areas declining home values.

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JPMorgan's profits declined 31% (Q3 2024 vs Q3 2023) due primarily to higher credit card losses. Wells Fargo also reported increased losses from credit cards, and they said, "Some consumers are feeling stretched and particularly lower income people." Consumer spending drives our economy but determining the sustainability of the spending is important to monitor.

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Business Confidence:

Wells Fargo reported that companies were hesitant to build inventory or invest in capital improvements. Business bankruptcies increased 40% from June 2023 to June 2024. The FED business confidence index has fallen steadily since 2021 but more recently has stabilized at a historically normal range. Maybe JPMorgan's statement about business confidence is confined to larger companies because smaller businesses are struggling to make ends?meet. Confidence drives wage increases and employment which are key to multi-family investing.

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Strong Job Creation:

In August the US Bureau of Labor Statistics revised down new job creation for the previous year by 800K jobs. And unfortunately, all of the fictitious jobs were in the private?sector. They managed to correctly count the number of new jobs created in the non-productive government, education and healthcare sectors. The sectors that drive innovation and create value through new products and services all lost?workers. Adding workers to the government sector only pressures the deficit or forces increased taxes. JPM may be overly optimistic about the labor market.

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