By Tom Ozimek
JPMorgan Chase CEO Jamie Dimon has sounded the alarm that U.S. consumers are running down their excess cash buffers and that inflation could stay stuck in high gear due in part to high government spending, while issuing an ominous warning that the “most dangerous time” that the world has seen in decades has arrived.
Mr. Dimon made the remarks while reporting JPMorgan’s third-quarter results, which showed America’s biggest bank by assets generating net income of $13.2 billion.
After boasting that his bank had $3.2 trillion in assets and a return on average tangible common shareholders’ equity (ROTCE) of 22 percent in the third quarter, Mr. Dimon turned his attention to the broader economy—and the headwinds it faces.
While warning of clouds on the horizon of consumer spending, “extremely” high government debt levels, and the largest peacetime fiscal deficits in U.S. history, Mr. Dimon said he sees a growing risk that inflation stays high and that the Fed will raise interest rates even higher.
He then mentioned the disruptive impact of the war in Ukraine and the recent terror attacks in Israel, warning of “far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”
“This may be the most dangerous time the world has seen in decades,” he cautioned.
One area Mr. Dimon focused on was the waning strength of American consumers and their key contribution their spending makes to the U.S. economy.
“Currently, U.S. consumers and businesses generally remain healthy, although, consumers are spending down their excess cash buffers,” he said.
Consumer spending is a key barometer of economic health in the United States as it accounts for roughly two-thirds of gross domestic product (GDP). This means that if the all-mighty U.S. consumer taps out, the economy is likely not far behind.
His warning about excess savings being depleted comes as the Federal Reserve Bank of New York revealed on Oct. 11 that Americans’ disposable income has fallen and consumers are increasingly dipping into the savings to prop up consumption.
From the beginning of the pandemic in 2020 through the end of 2021, Americans’ excess savings grew to roughly $2.6 trillion, or 14 percent of annual disposable income, according to the New York Fed.
Since then, U.S. excess savings has steadily fallen, dropping to 10 percent of disposable income—or $1.9 trillion—by the second quarter of 2023.
Data for the first two months of the third quarter cited by the New York Fed show that consumers have generally maintained their propensity to spend but, as real disposable income has fallen, they’ve increasingly been drawing on their savings to continue shopping.
The latest government data on consumer spending is for August, and it shows personal consumption expenditures (PCE) slowing down in recent months. Spending grew 0.4 percent in August, less than half of July’s pace of 0.9 percent.
But clouds seem to building on the horizon. A recent survey carried out in September by CNBC-Morning Consult found that 92 percent of U.S. adults have cut back on spending over the past six months. What’s more, over three-quarters of those polled said they plan to cut back on spending for nonessential items in the future.
All this has a growing number of economists and business leaders worried that the U.S. consumer may be reaching a breaking point.
For example, former Walmart CEO Bill Simon told CNBC in a recent interview that a series of factors—political polarization, inflation, and high interest rates—were all working together to undermine consumers and their propensity to spend.
“That sort of pileup wears on the consumer and makes them wary,” Mr. Simon told the outlet. “For the first time in a long time, there’s a reason for the consumer to pause.”
Concerns about inflation rearing its ugly head are on the rise, as well.
Inflation Eroding Living Standards
Nearly 50 percent of Americans say high prices are eroding their living standards—a record number that matched the all-time high set in July 2022, when the pace of inflation was a whisker away from breaking into the double digits.
“After stabilizing earlier this year, concerns about inflation have grown again,” reads the latest University of Michigan Surveys of Consumers report, released on Oct. 13.
The survey shows that 49 percent of consumers polled in early October said high prices were eroding their living standards. That’s up substantially from last month’s 39 percent and matches the all-time high notched in July 2022.
Inflation, as measured by the Consumer Price Index (CPI), shot up at a furious pace through 2021 and narrowly missed breaking the 10 percent psychological barrier by mid-2022.
The pace of rising prices hit a recent peak of 9 percent in June 2022, a multi-decade high that later fell to 3.1 percent by June 2023. However, inflation in August and September jumped back up to 3.7 percent—bringing with it renewed concerns about inflation.
What’s more, year-ahead inflation expectations have jumped, rising from 3.2 percent in September to 3.8 percent in early October, per the University of Michigan survey.
This, in turn, has led to a sharp drop in consumer confidence.
The University of Michigan survey showed that overall consumer sentiment plunged 7 percent in October, after two months of relatively little change.
“Assessments of personal finances declined about 15 percent, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19 percent,” said University of Michigan Surveys of Consumers Director Joanne Hsu, in a statement.
Other reports, including from The Conference Board and the New York Fed, show consumer strength and optimism waning, threatening to put a damper on the economy.