JPMorgan and Wells Fargo Earnings Show the U.S. Economy’s 2 Realities

The first batch of the biggest U.S. lenders’ quarterly earnings reflected two realities of an economy that is on solid footing but just starting to exit a period of decades-high interest rates: Consumer spending is holding up, while demand for loans remains notably weak.

While JPMorgan Chase and Wells Fargo both posted drops in profits from a year ago as part of their third-quarter earnings results on Friday, analysts had forecast larger declines. Investors cheered the better-than-expected numbers. Wells Fargo WFC +5.61% and JPMorgan JPM +4.44% shares surged for their largest one-day increases since February and April 2023, respectively.

Investors pay attention to the two banks and their other two largest competitors— Bank of America and Citigroup —as reliable proxies for consumer health and corporate activity. They have their hands in so many pockets of the global economy and track spending patterns. Wells Fargo and JPMorgan together represent nearly a quarter of overall U.S. customer deposits.

So—what are these enormous economic weathervanes telling us?

“Still virtually no loan demand, unfortunately,” Piper Sandler analysts led by Scott Siefers wrote in a report on Friday, referring to both banks.

People aren’t springing for new loans as interest rates remain elevated. It’s a sign that consumers are hesitant to take on new debt—or are, at least, waiting for the Federal Reserve to follow through on signals that it will further lower benchmark rates. (With inflation down from recent peaks, the central bank slashed rates last month for the first time since the pandemic began in 2020 and will likely do so again before the end of the year.)

Loan demand is weak even as executives from both banks said consumers are in solid shape and that they don’t see concerning credit-quality trends. That optimism was reflected in the S&P 500’s financial sector, which closed at a record high Friday.

“Year-over-year growth rates and spend, whether it’s credit or debit, is maybe down a little bit from what we were seeing earlier in the year, but it’s still quite solid,” Michael Santomassimo, Wells Fargo’s chief financial officer, told reporters on a call on Friday morning.

Jeremy Barnum, JPMorgan’s finance chief, said on a separate call with reporters Friday that even though credit card net charge-off rates rose from a year ago, “across the board, our consumer narrative that the consumer is fine remains in effect.”

Analysts will keep monitoring whether sluggish loan growth gradually picks up. If it doesn’t pick up while rates come down, that could pose new questions about how comfortable consumers feel in this economy.

The sector’s next clues on the broader economy come next week, when both Bank of America BAC +4.95% and Citi report their third-quarter results on Tuesday.