No Deep Recession In Sight

Last Friday, April 14, 2023, the New York Times
NYT
published an article in their business section detailing the spectacular earnings of major U.S. banks in the first quarter of 2023. JP Morgan, Chase, Citigroup
C
and Wells Fargo
WFC
unveiled banner earnings for the first quarter of the year. The report says “making billions more than they and analysts had projected. Even as the banks warned that the economy was on tenterhooks and that credit could become scarce, they said they would keep making loans and expected stronger profits if interest rates continue to rise”.

JP Morgan, the nations largest bank, reported strong revenues in most parts of its business, helping it post a profit of $12.6 billion in the first quarter. This is 52% more than a year earlier. The report states that Citigroup, the third largest bank, reported a profit of $4.6 billion, a 7% increase over the previous year. While Wells Fargo reported a $3 billion increase in revenues, and the bank said that loans were little changed.

The report stated that the banks will continue to make loans to qualified customers.

WWD (Women’s Wear Daily) published the financial result of some luxury companies that were stellar. The companies that reported were LVMH that reported a 17% increase in sales for the first quarter and Hermes reported a 23% increase of sales in the same quarter. Obviously, their sales were above expectation.

A quick conclusion is that top banks are in good shape and can continue to support the economy with their own activities including loans mortgages and other lending activities.

That does not sound like a recession.

I continue to forecast weak retail sales for the next two quarters, but a healthy rebound in the fourth quarter 2023. As long as banks continue to report strong earnings, it is unlikely that there will be a credit crunch that would limit growth. Smaller banks could struggle as customer rethink where they keep their money. We are living in uncertain times, and we will see first quarter retail earnings next month that will show what the consumer mood is now.

POSTSCRIPT: In 2022, the fourth quarter was weak, affected by a major snowstorm and otherwise mild weather. Last minute shopping did not occur. I would think that this year there will be greater demand during this holiday shopping period. I am sure retailers are preparing for a promotional environment.