Consumers defied bankers' 2023 forecasts. Will next year be as strong?

December 27, 2023 9:00 PM

The strength of U.S. household finances proved vital to preventing the U.S. economy from falling into the recession that many in the banking industry had predicted for 2023. Now executives at the country's four largest banks say they expect consumers' financial resilience to hold up for much of next year.

The bankers' comments, which are supported by early forecasts for consumer spending in 2024, indicate that consumers could once again help the economy avoid a worst-case recession scenario.

"The story for '24 in consumer will look a little bit like the story for '23 unless something changes," Marianne Lake, co-head of JPMorgan Chase's consumer and community banking segment, said at an industry conference earlier this month.

The spending habits and overall financial health of consumers reported by bank executives this month are decidedly more positive than leaders at the same large banks had predicted for 2023. Twelve months ago, bank CEOs were preparing for a recession and a decline in consumer spending. Both have yet to materialize.

America's largest banks have a unique and near real-time understanding of the financial health of U.S. consumers, thanks to their central roles as lenders and direct deposit recipients for tens of millions of consumers nationwide.

Here is a closer look at how leaders at the country's banking giants see the health of U.S. consumers heading into 2024.

Angus Mordant/Bloomberg

JPMorgan Chase

The country's biggest bank expects healthy demand in its credit card business to once again drive growth in its consumer unit in 2024. Total credit card balances rose 22% in 2023, and next year should also bring double-digit growth in card balances, Lake said at an industry conference in December.

The picture JPMorgan paints of consumers today contrasts sharply with the bank's characterization of consumers at the end of 2022. The bank's chief executive officer, Jamie Dimon, said at the time that the Federal Reserve's efforts to tame record-high inflation could push the U.S. economy into a recession in the first half of 2023.

"That didn't play out, in large part because the extraordinary fiscal response to the pandemic took longer to play through the economy and come off consumer balance sheets," Lake said.

Instead, price growth began to slow in 2023, and resilient consumer spending helped the U.S. economy avert a recession, at least this year.

Consumer credit performance at JPMorgan has normalized to expected levels, but it has yet to deteriorate past that, Lake said.

JPMorgan anticipates that next year will bring a modest decline in the deposits that consumers keep at the bank, but also that consumer deposits will stabilize in early 2025. Consumer deposits accounted for about 48% of JPMorgan's $2.4 trillion deposit franchise at the end of the third quarter, according to regulatory filings.

Next year should also bring a return to pre-pandemic levels of cash maintained by consumers, Lake said. Those cushions surged during the pandemic, and they have since been falling, though they are not quite back down to their level four years ago.

"It still hasn't fully normalized, but we're kind of splitting atoms at this point," Lake said. "We're getting there."

Bank of America

The economy's health in 2023 helped insulate Bank of America from any significant increase in charged-off loans, particularly in the consumer segment, CEO Brian Moynihan said earlier this month at an industry conference.

"[An] unemployment rate of 3.9% does not generate a lot of card charge-offs," Moynihan said.

Bank of America's credit card loss rate inched up from 2.60% in the second quarter to 2.72% in the third quarter. But it remains below the 3.03% loss rate the bank recorded in the fourth quarter of 2019, which was the last full quarter before the COVID-19 pandemic.

Consumers in 2023 proved more reliable at making payments than Moynihan predicted they would be at the end of 2022. Bank of America's consumer base also turned out to have greater spending power and a higher demand for personal loans than the bank had forecast.

In late 2022, Moynihan said he expected 2023 loan demand from consumers and businesses to fall in line with what is typical for a "very low growth economy."

On the deposit front, Moynihan said recently that Bank of America has yet to see the widespread outflows that some in the industry had feared would follow successive rate hikes by the Fed.

"The reality is that all the movement on the consumer side is the higher accounts that went into the market," he said. "The lower-end accounts are still sitting … with lower average balances."

More than half of the bank's $1.9 trillion in deposits come from consumers, Moynihan said.

Wells Fargo

In the eyes of Wells Fargo CEO Charlie Scharf, consumers remain "very, very strong."

Higher interest rates and inflation have yet to have material impacts on the majority of consumers, he said.

"We don't see a whole lot of change at all, which is kind of remarkable when we look at it," Scharf said at an industry conference earlier this month.

The head of the $1.9 trillion-asset bank noted "incredible consistency" in both debit- and credit-card spending this fall. Wells reported $42.4 billion in total credit card balances at the end of the third quarter, up from $40 billion in the second quarter and $36 billion a year ago.

"We would expect to see more slowing at this point in time," Scharf said in December. "We're not exactly sure what's going to come. … It's not really evident in the data yet."

At an industry conference in December 2022, Scharf said economists at Wells Fargo were predicting multiple quarters of a mild recession for 2023 and a "fairly weak" economy through the entire year. "We're hopeful that [the recession] will be somewhat mild relative to what it could possibly be, but time will tell," Scharf said at the time.

Expectations for a weaker economy in 2023 prompted the bank to reassess its lending standards, including throughout its consumer business, Scharf said back in 2022.

Looking ahead to 2024, Scharf said recently that he expects consumer demand will continue to prop up the financial position of businesses large and small.

Citigroup

The early part of the holiday shopping season, including Black Friday and Cyber Monday, brought "good momentum" for Citi's consumer business, Chief Financial Officer Mark Mason said this month at an industry conference.

Average loans in Citi's personal banking unit, which includes all credit cards, rose to $196 billion in the third quarter of 2023, up 13% from the same period in 2022.

"In the U.S., the corporate and consumer base has been remarkably strong," Mason said.

Still, Citi executives are planning for a mild recession in the second half of 2024, he said.

Before then, however, the $2.4 trillion-asset Citi anticipates that its loss rate on branded credit cards will rise to a range between 3% and 3.25% in the fourth quarter of 2023. That represents an "old normal to some extent," Mason said. The bank's loss rate on cards should continue to rise in the early part of 2024, he said.

If that long-awaited recession finally hits the U.S economy next year, the lingering power of consumer spending could help shorten the downturn's length or lessen its severity.

Household spending is expected to surpass analysts' previous expectations for 2024, according to the latest estimates from Goldman Sachs' economic research division.