The spread of the delta variant and rising consumer prices made it difficult to assess consumer and business sentiment in the third quarter. You can see this in retail sales data, which fell 1.1% in July from an expected decrease of 0.3% before rising 0.7% in August, compared to an expected decrease of 0.8%.
Sentiment has been difficult to gauge as different parts of the country and the world are going through different stages of the pandemic and different policies, all of which affect business operations and consumer spending. Global supply chain issues also remain a problem.
But as the third quarter draws to a close, trying to understand how consumers and businesses have done over the past three months is important as it can help you understand earnings results for different sectors and companies – which is a big one Can be a catalyst for stocks.
There are obviously all kinds of data that you can use to measure consumer sentiment. But a pretty simple thing I love to do is see what some of the largest banks in the US and the world are saying as their performance is very closely related to the economy and they have great insight due to the business condition of their retail and corporate clients have to. Most of the major banks recently spoke to the Barclays Annual global financial services conference.
Despite a worldwide increase in the delta variant in the last three months, the consumer seems to continue to develop positively. Marianne Lake, Co-CEO of JPMorgan Chase‘S (NYSE: JPM) Consumer and Community Banking, said that after spending accelerated from late 2020 to the second quarter of this year, spending has eased somewhat, particularly in sectors hit hard by COVID-19 such as travel, airlines and accommodation. However, Lake said the bank’s consumer spending was still up 18% or 19% compared to 2019.
While the slowdown may not sound like a great deal, I think it’s very good that spending levels remain strong considering what happened to the Delta variant in the third quarter. This shows that despite the disruption, the economy is doing better at dealing with the spreading virus.
Economic controls and unemployment benefits also slowed in the quarter. Earlier this month, millions of unemployed Americans were not receiving an additional $ 300 a week. Lake said that impact could soon boost consumer spending as consumer balance sheets slow down and more people go back to borrowing, but it could take some time to normalize as the economy progressed over the past year.
Lake added, âI never like to mention a turning point, but we expect the economy to remain in a solid growth mode when the economy slows, when the health situation is under control, which we believe will be the case, which we believe will after the fall is will. ”
Lake’s comments were supported by City group‘S (NYSE: C) CFO, Mark Mason, who said that credit card sales across the card business have increased “quite significantly” but that payout rates also remain high, showing that the consumer is still financially sound overall, likely due to savings and Incentives built in the course of 2020 and early 2021.
As was the case for much of the past year, business sentiment remained more negative than consumer sentiment. Most banks reported in the first two quarters of this year that many companies are still not borrowing for investment or reinvestment as they grapple with supply chain issues and wait for uncertainties.
However, some banks reported slight credit growth in the second quarter. This trend continued in for one of the largest lenders in the country Bank of America (NYSE: BAC)who gave an insight into the bank’s commercial credit growth in July and August at the Barclays conference.
I see the steady but sustained growth in July and August as a good sign that the Delta variant is not unduly derailing the modest momentum that is returning to the commercial business world. It may not explode, but it will grow. Revolving commercial credit lines remain unchanged, according to Alastair Borthwick, President of Global Commercial Banking at Bank of America. The revolving lines have remained unchanged for some time at most banks, which has resulted in subdued credit growth in the commercial sector. Borthwick said it is currently very difficult to predict when turret utilization will pick up.
Insight from America’s fifth largest bank, US Bancorp (NYSE: USB), seemed to repeat that of Bank of America. CFO Terry Dolan said line utilization at the bank has been stable and that commercial and industrial (C&I) credit growth, which is common to many small businesses, is still subdued, although credit pipelines are strong and he is optimistic in the markets Bank sees.
âWhen we think about the various components on the C&I side, the biggest challenge is that given the attractive interest rate environment and the ability for people to continue to see huge wage cuts, which I believe is happening in the industry, we gain access to the capital marketplace “said Dolan.” There is also adequate excess liquidity in the market. “
What that means for you
You can use this consumer and business sentiment data to ponder stocks and their third quarter earnings results, most of which will be released in October and early November. Companies that rely on consumer spending should be in decent shape overall to hit their projections, though you may want to inject a healthy dose of skepticism into the travel, accommodation, and airline industries, in which Lake said it has a downturn Seen on the commercial side, it’s harder to predict that businesses are still spending and borrowing less than consumers. So keep that in mind, especially when it comes to companies trying to attract new business customers.
It’s important to look at the stocks you are evaluating and, as much as you can, find out how your clients have been affected by the delta and other macroeconomic factors each quarter. Learning what we can from the big banks is a good first step.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.