Several financial services firms have reported earnings in the past two weeks offering macro commentary and guidance on how they plan to position themselves for 2024.
Two key themes:
- Consumers keep spending, and
- Not all banks are convinced of a soft landing.
Let’s dive deeper into the takes by various financial institutions and their outlook on the state of the economy in early 2024.
Consumers keep Spending
Virtually every financial management team that spoke this week broadly noted the strength and stability of consumer spending.
JP Morgan (JPM) enjoyed 7% year-on-year growth in debit and credit card spending in the fourth quarter of 2023 and sees continuing strong consumer spending going forward:
“...I do think it's important to take a step back and remind ourselves that consistent with that soft landing view, just in the central case modeling – obviously, we always worry about the tail scenarios – is a very strong labor market. And a very strong labor market means, all else equal, strong consumer credit. So, that's how we see the world.”
Daryl Bible, CFO of M&T Bank (MTB) also noted a trend of renewed purchasing power through wage growth:
“We are encouraged to be [sic] continued strong performance by the consumer as continued job gains as well as wage growth above inflation helped drive consumer spending.”
However, M&T expects the pace of acceleration of the spending to continue coming down relative to prior levels as inflation moderates.
Similarly, Bank of America (BAC) CEO Brian Thomas Moynihan reaffirmed a positive consumer outlook with a deceleration relative to previous levels and highlighted that it underpins BofA’s core thesis of a soft landing:
“And so the spending level should sustain an economy, albeit our core prediction is it's slowing down from a higher growth rate in the third quarter[…]
[…] but we see the consumer activity indicating that they're still in the game, they're still spending money where they spend is a little different, more in services and going out in restaurants and experiences and less on goods at retail.[…]
So they're working, they're getting paid. They have balances on accounts. They have access to credit. They've locked in good rates on our mortgages. -- and they're employed. It's -- we feel it's good. So we think the soft landing is a core thesis and our internal data supports what our research team see[…]”
Not all banks are fully convinced of the consensus soft landing scenario
As noted above, BofA’s core thesis for 2024 is a soft landing for the US economy. JP Morgan (JPM) also believes that the current outlook points to a high probability of a soft landing:
”I think it's uncontroversial that the economic outlook has evolved to include a significantly higher probability of a soft landing.”
But not everyone is convinced. Christopher Marrott Gorman of KeyCorp (KEY) referred to consumers and the job market being in “good shape”, but is skeptical of the market consensus of a soft landing scenario, mainly due to sticky inflation:
"I personally have a view, everyone is sort of coalesced around the soft landing. I think inflation is still pretty sticky. I think there's a bunch of drivers out there. We're managing the business for a short recession in 2024."
The CFO of PNC Financial (PNC) stands out as least optimistic with the expectation of a mild recession this year:
“In regard to our view of the overall economy, we're expecting a mild recession starting in mid-2024 with a contraction in real GDP of less than 1%.”
Daryl Bible, CFO of M&T Bank (MTB) also reminded call participants that while a soft landing is the most probable scenario, a recession cannot be ruled out:
“We see so-called soft landing scenario as having the highest probability, but the possibility remains for mild recession brought down by lagged impact of rate hikes from last year.”
Though Bible remains very optimistic in case the Fed cuts rates:
“If the Fed just lowers rates just a little bit, I think the markets will get excited and you're going to have some things take off, and there'll be a lot more investment, which will help the lending side.
I actually will get more excited on the fee side as well. We saw a fair amount of activity just in December with the move that we had in the yield curve in treasuries, where there was a lot of pent-up demand and we were able to do some placements in our commercial mortgage area, and you saw that flow through with some fee income.
So I get kind of excited that if the Fed just lowers rates just a little bit, I think we're going to have more momentum come through than what you're actually seeing maybe in the guide that we have.”
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