JPMorgan Exec Warns Inflation Will Weaken Consumer Resilience

JPMorgan Chase’s consumer and community banking chief said the lender is keeping an eye on consumer health.

During a speech Tuesday (June 9) in New York City, Marianne Lake said that while consumers remained resilient and spending sturdy, there was a “small” group of people for whom salary increases were not keeping pace up inflation.

“You’re not seeing anything right now, but you are being very, very watchful. If inflation were to be higher for longer, this sort of trend of wages keeping up with inflation could be at some risk,” said Lake, whose comments at the Morgan Stanley U.S. Financials Conference were reported by Reuters.

The report also noted a recent prediction from Goldman Sachs CEO David Solomon that consumer behavior will change in the second half of the year if inflation accelerates.

Inflation in the U.S. rose at its fastest pace in three years in April as the U.S.-Iran war caused energy prices to climb. At the same time, increasing price pressures are eating into household income and threatening to curb consumer spending and economic growth, Reuters added.

Lake said there was also less built-in resiliency for future shocks as cash cushions had diminished from post-pandemic levels.

“While the unemployment is low, demand for labor is a little softer,” she said, adding that higher tax refunds and lower tax bills, coinciding with elevated energy prices, had somewhat lessened the impact.

“For the lower-income customer, somewhere between 20% and 25% of that incremental money as a result of higher tax refunds has been spent through the first two months of higher energy prices. So time is a big vector here,” she said.

Recent research from PYMNTS Intelligence finds the gap between the things households are trying to do to stay afloat and what is actually working is growing, as inflation remains high and essentials continue to consume a greater piece of the monthly budget.

“Real spending on durable goods has now slipped below year-ago levels, while gasoline and housing costs continue to pressure household cash flow,” PYMNTS wrote last month. “In that environment, simply cutting back is proving less effective for consumers already operating with fewer financial buffers.”

The research found that 80% of so-called “Pressure-Driven Cutback Consumers” in the U.S. had cut everyday spending last quarter, while just 1 in 6 said it actually worked.

“The gap between effort and results is the defining feature of the Cutback Economy, and it matters more today than when the survey was taken in early April,” the report added.