What Do Bank Earnings Tell Us About the State of the Economy?

October 14, 2021

While economic growth loos to have lost momentum in the third quarter, the period delivered stellar results for big U.S. banks. The nation’s largest financial institutions reported strong earnings driven by strong consumer spending, but a look beneath the surface shows an economy that is still on the mend. 

The Wall Street Journal analyzed the earnings reports of several of the nation’s big banks and noted a few important indicators of where the economy may be heading.

Their first major point is that consumer spending has been strong. It eclipsed pre-pandemic levels, and bank executives expect the trend to continue into the holidays. Credit card spending in particular has made a big rebound. Citigroup reported that spending with credit cards jumped 20% from the same time last year and reached a record high. Consumers may be relying on credit too much, however, as more people are carrying a balance on their cards and late fees are up.

Another important bit of data is that lending remains low. With the economy still finding its legs, demand for loans has fallen. Bank of America and Wells Fargo both reported fewer total outstanding loans than in the same period last year, but did note an improvement from the second quarter.

The biggest bright spot for banks was the money made from deals. Several banks reported record-breaking quarters for mergers and acquisitions fees, something they don’t anticipate changing anytime soon. It is a strong sign of confidence in the economy from business executives who are willing to make big moves.

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