As investors have likely heard, many economists and experts are penciling in a recession sometime this year or in 2023. In fact, some think we could be in one right now. But as the largest bank in the U.S., JPMorgan Chase (JPM -0.96%) is often considered a bellwether for the economy because it does business with so many different industries and in so many different parts of the country. On its recent earnings call for the second quarter, JPMorgan said it has yet to see signs of a weakening economy. Here's why.
Consumers and businesses remained healthy
Obviously, the data is slightly out of date right now, but JPMorgan continued to see a strong consumer in the second quarter of the year. Credit card loan balances jumped 9% in the quarter. Total debit and credit card spending among the bank's customers also grew 15% year over year.
Furthermore, 30- and 90-day delinquencies for credit cards are down from the first quarter of the year, although there was an uptick in 30-day delinquencies for auto loans. Net charge-offs -- debt unlikely to be collected and a good indicator of actual loan losses -- also held steady and remained near historic lows in Q2. JPMorgan is also predicting that credit card charge-offs will remain below 2% this year, which is a very healthy rate.
"It's like a broken record, the consumer right now is in great shape. So even if we go into a recession, they're entering that recession with less leverage in far better shape than they've been," JPMorgan Chase's Chief Executive Officer Jamie Dimon said on the bank's earnings call.
Chief Financial Officer Jeremy Barnum did say that while no real cracks are showing on the consumer side, if you look really closely at the bank's lower-income customers, you might see cash running down a little faster than in other customer segments. But Barnum added that cash levels in this segment are still above pre-pandemic levels and that it's hard to know if things are simply normalizing or if there is actual credit deterioration.
The bank also saw healthy activity from businesses during the quarter, as average loan balances in the bank's commercial unit grew 4% from Q1, with commercial and industrial loans, which are for things like working capital and capital expenditures, up 6% from Q1. Non-accrual loans and charge-offs remained stable and near historic lows for commercial loans.
So what's the deal?
There's been a lot of debate about whether we are in a recession. But clearly, through June, consumers and businesses remained healthy and were spending and borrowing at very healthy levels.
Things could certainly change. Dimon not too long ago warned investors of an economic "hurricane." But Dimon also just acknowledged that the consumer would be entering a recession in better shape than ever.
The economy is also in uncharted waters with everything going on, so we could experience a different kind of recession than the ones we've seen in the past. Ultimately, I think the question is less about entering a recession and more about whether we see a modest or severe slump.
If we enter a recession soon, the strength of the consumer and a strong labor market should be able to push through. But if there is a more severe recession, then it's hard to know what would happen, so investors should focus less on whether we are going to enter a recession and more on the severity.