Recession or inflation? US Inc. places its cash at the ready
From banking to medicine to Big Oil, all are certain that the future will be bright despite stubborn inflation and a tumultuous geopolitical environment.
The Federal Reserve’s stance on interest rates may encourage lenders to raise the interest rates they charge US residents for debt.
There are concerns that credit quality may decline in the future due to the high household indebtedness relative to other nations. However, lenders are certain that the demand for credit will stay high.
American Express, for instance, hasn’t discovered any evidence of a decrease in consumer spending. Despite their concerns about an impending recession, bankers find solace in the economy’s low jobless rate. They claim that because of tight labour markets, households would be able to pay off their debt and perhaps be eager to take on more.
The impact of the exchange rate is currently being prepared for by pharma producers as a strong dollar reduces their profits. Fuel and freight cost concerns are also reducing their income. Pharma companies do not anticipate a significant drop in demand as long as Covid is still affecting some nations. Walgreen, a chain of pharmacies, is altering its approach as demand for Covid declines.
We include information on US financial institutions including Visa, Goldman Sachs, JP Morgan Chase, and American Express in the second of our three-part series, along with pharmaceutical companies like Johnson & Johnson, Procter & Gamble, Amgen, and others.
AMERICA ONLINE
America Online (FY January-December)
Q2 FY22: $13.39 billion in revenues; $1.93 billion in net income
Net income for the second quarter of fiscal year 21 was $2.28 billion.
The business benefited from a strong increase in consumer expenditure on travel and entertainment. Both inside and outside of the US, customer acquisition growth was strong. The management went into detail on the rise in operating expenditures brought on by higher salaries to recruit and retain talent.
Due to the high cost of hiring due to a tight labour market, American Express has increased its operating expenses. It is not overly concerned about inflation because its credit quality and spending growth are both encouraged by a record low jobless rate.
The management predicts a recession, but that the labour market’s deterioration will be a bigger issue. The business does not see that happening and is fairly optimistic about growth resulting from consumer demand.
GOLDMAN SACHS
Silverman Sachs (FY January-December) Q2 FY22: $11.86 billion in revenue; $2.93 billion in net income
Q2 FY21: $15.38 billion in revenue; $5.49 billion in net income
Given the unfavourable interest rate environment brought on by the Fed’s fast rate hikes, the financial giant reported a decline in income.
Although revenues fell, the lending industry held up well.
Equity investments caused the bank to suffer a significant loss, and investment banking income fell by 41%. However, the loan industry—consumer and corporate—grew. Revenues from consumer banking increased by 25%. Revenues from corporate lending more than doubled year-on-year.
According to Goldman Sachs, there is a good likelihood that the US economy will enter a recession. In the event of a recession, it anticipates that the strain on its loan portfolio will intensify.
JPMORGAN CHASE & CO.
Morgan Chase & Co. (FY January-December)
Q2 FY21: $30.72 billion in revenue; $8.28 billion in net income
Although revenues were hurt, the bank saw a respectable year-over-year loan increase of 7%. The bank’s balance sheet took a hit as a result of the unfavourable market conditions. Surprisingly, the bank’s card business’s performance provided crucial consumer information.
The management claims that US consumer expenditure, including discretionary spending, is not slowing down. Spending on necessities is beginning to be affected by inflation.
While the bank’s revolving balances increased nine percent, card outstandings increased by 16 percent. Which demonstrates that the US consumer still has a leveraged balance sheet and is willing to fulfil desires with loans.
“Consumers are doing well. They are making purchases. They earn more money. There are lots of jobs. Spending is up 10% from the previous year and up nearly 30% from before Covid. Businesses are doing well, according to those you speak with, he said.
VISA
Visa (FY September-October)
Q3FY22: Revenue of $7.3 billion and net income of $3.4 billion
Q3 FY21: $6.1 billion in revenue; $2.6 billion in net income
Strong results for the months of April and June were published by the global payments corporation that powers cards. The company’s transaction volume increased as a result of the rise in travel and other discretionary spending.
The total volume of payments increased by 8%, with the US reporting a 12 % increase. Regarding their expectations for the upcoming quarters, management remained optimistic.
While investors fret about inflation, Visa may profit from the erratic market and rising prices. Visa payments have increased, as have transaction sizes, thanks to inflation. The management also has faith that consumers won’t cut back on their spending just yet. The business emphasised that such developments in consumer buying patterns show resiliency.