JPMorgan, BofA Charge-Offs Fall as Consumer Spending Holds
Second-quarter results from JPMorgan Chase and Bank of America show falling loan losses and rising spending, challenging fears of a diverging US economy.
JPMorgan Chase and Bank of America reported second-quarter results last week that indicate broad resilience among US consumers. Despite persistent inflation and elevated interest rates, spending is rising and loan defaults are falling across all income brackets.
The credit metrics are particularly notable for investors monitoring consumer stress. JPMorgan’s net charge-off rate dropped to 3.34% in the second quarter, down from 3.47% in the first quarter and 6 basis points lower than the same period last year. The improvement was strong enough for the bank to cut its full-year net charge-off forecast to 3.2%.
Bank of America posted a similar trend in its credit card portfolio. The bank's charge-off rate fell to 3.55%, down from 3.64% in the previous quarter and 3.82% a year earlier.
Bank executives used their respective earnings calls to push back against the popular narrative of a "K-shaped" economy. This theory suggests that asset-rich, high-income households are pulling ahead, while lower-income consumers buckle under the weight of price pressures. JPMorgan Chief Financial Officer Jeremy Barnum told investors that consumer spending is "robust and across income segments." He noted that better-than-expected credit performance is visible "pretty much across the board by any kind of FICO score."
Bank of America CFO Alastair Borthwick echoed this assessment of broad financial health. He pointed out that consumers remain resilient, specifically noting that "average deposit investment balances and spending all showed linked quarter increases."
For market participants, these banking metrics serve as a high-frequency indicator of underlying economic health. If lower-income consumers were facing severe financial distress, it would typically manifest first in depleted savings buffers and rapidly rising delinquencies. The fact that deposit balances are growing alongside declining charge-offs suggests the labor market is still providing sufficient support to sustain household cash flows.
This dynamic carries weight for investors currently trying to price in the probability of a US recession. A broad-based consumer base capable of maintaining spending levels reduces the likelihood of an abrupt economic contraction. Furthermore, stable credit quality in the banking sector removes a major systemic vulnerability from the broader market outlook.
