Bank earnings reports show economy is running resilient

On Tuesday and Wednesday, several of the country’s largest banks, including JPMorgan Chase, Bank of America, and Goldman Sachs, reported earnings and provided updates on the economy and the financial health of households.

These earnings reports are among the most important economic indicators released each quarter. While politicians and media pundits debate the economy and economists argue over statistical minutiae, the nation’s largest financial institutions provide a real-time appraisal of the financial condition of households and businesses.

The latest results suggest that the American economy remains remarkably resilient. Moreover, despite the recent spike in gasoline prices, most households remain on solid financial footing. Consumer spending continues to expand, credit card activity remains healthy, and deposits have generally remained stable across the largest banks.

If American households were under severe financial stress, it would quickly manifest as higher loan losses, weaker consumer lending, and declining payment activity. Instead, the nation’s largest banks continue to report solid consumer banking results. Thus indicating that most families are still spending despite elevated prices and higher interest rates. Importantly, the banks reduced reserves for impaired credit. Household consumption drives the economy, accounting for 70% of economic activity.

In addition, corporate America continues to invest. That is critically important for the economy’s long-term health. Strong investment banking revenues, increased merger activity, robust equity issuance, and active capital markets demonstrate that businesses remain willing to finance expansion projects. Much of this investment continues to flow into artificial intelligence infrastructure, semiconductors, power generation, and digital infrastructure. The willingness of corporations to raise capital is a vote of confidence in the long-term outlook for the economy.

The successful initial public offering of SpaceX demonstrates that major banks, institutional investors, and individual investors remain willing to invest in America’s long-term future. Equally important, financial markets remain exceptionally liquid. Ample liquidity is essential to a growing, dynamic economy. Trading revenues surged across nearly every major bank as institutional investors repositioned portfolios amid geopolitical uncertainty and rapid technological change. Higher trading activity reflects investors allocating capital toward industries expected to benefit from the next phase of economic growth and not from excessive speculation.

Still, the economy faces its challenges.

Consumers continue to face elevated housing costs, expensive automobiles, higher insurance premiums, and rising prices for many everyday necessities. Credit card balances remain high, and delinquency rates have increased modestly from their unusually low post-pandemic levels. Higher interest rates continue to place greater pressure on lower-income households than on more affluent consumers.

Perhaps the most encouraging aspect of these earnings reports is what they reveal about confidence. Contrary to the reports of the left-wing media, banks remain willing to lend, businesses continue to borrow to finance productive investment, and consumers have not retreated from the marketplace. The outlook for the economy is bright.

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At the same time, investors should avoid excessive optimism. Elevated trading activity, artificial intelligence-related financing, and the rebound in mergers and acquisitions may not be sustainable indefinitely.

But the earnings reports from America’s largest banks paint a bright picture of an economy that remains fundamentally healthy. Consumers are still spending. Businesses are still investing. Credit remains available. That is welcome news for investors, policymakers, and American families alike.

The writer owns shares in Goldman Sachs.

James Rogan is a former diplomat who later worked in law and finance for over 30 years. He writes a daily note on markets, economics, politics, and social issues. He can be reached at Roganjames8202@gmail.com.