If the economy is fragile, why are corporate earnings still strong?

In its earnings report, Ally Bank, a major auto lender, provided data on delinquent auto loans in the second quarter for borrowers at various income levels. Delinquent loans were at or near pre-pandemic levels for low-income borrowers.

Ally declined to provide the same data for previous quarters, making it impossible to know how quickly delinquent loans might have increased. On her earnings call, Jenn LaClair, Ally’s Chief Financial Officer, said, “We have continued to invest in talent and technology to improve our service and collections capabilities and remain confident in our ability to effectively manage the credit in various environments.

Some analysts believe that the decline in spending could spread to the wealthiest households.

“You’re going to see it go up the income ladder as the year goes on with people sitting there saying, ‘I’m going to live without it rather than spend this much on it’ or ‘I’m going to trade in to something more. affordable,’” said Mr. O’Rourke, the JonesTrading strategist. He added that he was waiting for revenue from Macy’s and Nordstrom, which is expected to report in August, to see if that happens.

The problem is that the heavy summer spending that has recently bolstered revenues for the hotel and airline industries is not sustainable. “There is a faction of the market that is absolutely convinced that when we come into the fall and the bills for summer expenses come home, the consumer will be in a much more difficult situation,” said Mr. Barnhurst of PGIM.

An exchange this earnings season reveals how CEOs and businesses can sustain the economy, even when they fear a downturn is imminent.

Jamie Dimon, chief executive of JPMorgan Chase, warned in May that storm clouds were gathering over the economy. During JPMorgan’s second-quarter earnings call, Wells Fargo analyst Mike Mayo asked Mr. Dimon why the bank had pledged to invest such large sums this year if things could get dire.

Leave a Comment