What banks are saying about the U.S. consumer right now

The Street

Stephen Biggar, Product Strategy, Director Of Financial Services Research, Argus Research, breaks down how banks rate the consumer and what it means for the economy.

Transcript

00:00On a scale of 1 to 10, if you had to rate the U.S. consumer based on what the banks were saying,

00:071 being worse, 10 being best, what rating would you give them?

00:10Well, we're probably on an 8 at this point.

00:13I would say certainly the banks have already added to reserves ahead.

00:19If you think back a quarter or two, they were looking for a slowdown in the economy.

00:25They were looking for higher unemployment above this kind of 4% level, 5 to 5.5.

00:32I think that's where banks start to get a bit worried that they have enough in reserves.

00:39And we've had some pockets of weakness in credit card and auto loans, particularly at the lower end consumer.

00:47There's definitely a bifurcation there at income levels when it comes to credit quality and growth.

00:54So I'd say it was pretty solid in terms of how consumers have been reacting.

01:03One thing I didn't mention as well is that the deposit costs, there was a lot of pricing pressure when rates hit their peak

01:10and until the Fed started to reduce.

01:12So that was a problem going back about a year.

01:16So even the costs on deposit, that deposit pricing pressure was not there this quarter.

01:21So banks are okay in this higher for longer interest rate environment.

01:28And that's because they're big holders of fixed income securities.

01:35And those move up in value or stay higher in value as rates are where they are.

01:41And they're able to reprice those as their lower yielding securities are maturing.

01:48They're able to put those into higher yielding securities.

01:52So that's actually been a benefit.

01:54I think if you talk to the average bank, they'd say, well, a little bit lower rates would be good

01:57because that would help stimulate loan growth, which has, again, this kind of low single digit level.

02:03They'd like that to be a little bit higher, but higher for longer is not universally bad for banks by any means.

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