Category: Business

Recent data reveals significant declines in deposits at two major US banks.

Citigroup’s quarterly earnings report indicates a decrease in deposits from $1.3305 trillion in Q1 of 2023 to $1.3072 trillion in Q1 of this year, marking a notable decline of $23.3 billion over the course of 12 months. Similarly, Wells Fargo experienced a drop of $15.1 billion in deposits during the same period, with figures slipping from $1.3567 trillion in Q1 2023 to $1.3416 trillion in Q1 2024.

JPMorgan Chase reported a 7% decrease in deposits within its Consumer & Community Banking division for Q1, excluding data from its majority acquisition of First Republic Bank, which has faced financial challenges. However, the overall deposits for the firm remained steady, excluding First Republic’s contribution.

Looking ahead, JPMorgan’s chief financial officer, Jeremy Barnum, anticipates stagnant or slightly declining deposit balances as consumers seek higher returns on their cash investments. He remarked, “We expect deposit balances to be sort of flat to modestly down. So that’s a little bit of a headwind at the margin… in a world where we’ve got something like $900 billion of deposits paying effectively zero, relatively small changes in the product-level reprice can change the NII run rate by a lot.”

Meanwhile, CEO Jamie Dimon of JPMorgan Chase issued a cautionary note, suggesting that US banks could face another crisis if the Federal Reserve opts to raise interest rates. In his annual shareholder letter, Dimon highlighted the vulnerability of banks and leveraged US firms to persistent inflationary pressures, warning of dire consequences if the Fed tightens monetary policies further.

Dimon referenced JPMorgan’s acquisition of First Republic in May 2023, following the collapse of two other regional banks, Silicon Valley Bank (SVB) and Signature Bank. He explained that the banking crisis seemed to be waning with the resolution of these three troubled banks, contingent upon stable interest rates and the absence of a severe recession.

However, Dimon underscored the potential risks associated with a significant increase in long-term interest rates, particularly if accompanied by an economic downturn. He emphasized the detrimental impact such a scenario could have on financial assets, citing a 2-percentage-point rise in rates as equivalent to a 20% reduction in asset values. Additionally, Dimon highlighted the vulnerability of certain real estate assets, particularly office properties, to the effects of recession-induced higher vacancies and widened credit spreads.

The global economy has sidestepped the looming threat of a crippling recession, with the IMF revising its forecast for worldwide aggregate growth in 2024 to 3.2%, up from the previous 2.9% estimated in October. The IMF emphasized the remarkable resilience of the global economy, weathering various adverse shocks and “significant central bank interest rate increases aimed at restoring price stability,” with growth primarily driven by advanced economies, notably the U.S., bolstering demand. However, the IMF also highlighted a concerning trend of widening disparities between low-income developing countries and the rest of the world. According to the IMF, “A troubling development is the widening divergence between many low-income developing countries and the rest of the world. For these economies, growth is revised downward, whereas inflation is revised up.” These nations, primarily in Africa, Latin America, the Pacific islands, and Asia, have borne the brunt of the COVID-19 pandemic, experiencing substantial declines in output relative to pre-pandemic projections and facing challenges in recovery.

Additionally, these struggling economies are burdened with mounting debt service obligations, severely limiting their ability to invest in essential public goods such as education, healthcare, and social safety nets to enhance food security.

In a separate report, the World Bank, the IMF’s counterpart, highlighted a concerning trend whereby half of the world’s 75 poorest countries are experiencing a widening income gap with the wealthiest economies, marking a “historic reversal” in development. According to the World Bank Group’s Chief Economist Indermit Gill, these countries, home to a quarter of humanity, including 1.9 billion people, and 90% of those facing hunger or malnutrition, are grappling with what he terms potentially “a lost decade.” Gill lamented the lack of attention from the rest of the world, noting that many governments in these nations are paralyzed by debt distress.

Drawing attention to success stories like South Korea, China, and India, which transitioned from borrowers to economic powerhouses and now contribute to the International Development Association (IDA), the World Bank’s chief economist stressed the importance of financial support from wealthier nations to the poorest countries. He emphasized that global prosperity and peace require tapping into every reservoir of economic potential, underscoring the imperative of not turning away from a quarter of the world’s population.

The global economy has managed to evade the looming threat of a severe recession, as highlighted by the IMF’s recent adjustment of its 2024 worldwide aggregate growth forecast to 3.2%, up from the previous projection of 2.9% made in October. This positive revision underscores the remarkable resilience displayed by the global economy, which has weathered various adversities, including “significant central bank interest rate increases aimed at restoring price stability,” while largely sustaining its growth momentum. Notably, the growth has been primarily driven by advanced economies, with the United States taking the lead in bolstering demand.

Despite these encouraging signs, the IMF also sounded a note of caution regarding the widening gap between low-income developing countries and the rest of the world. According to the IMF, “A troubling development is the widening divergence between many low-income developing countries and the rest of the world. For these economies, growth is revised downward, whereas inflation is revised up.” This divergence is particularly concerning for nations in Africa, Latin America, the Pacific islands, and Asia, which have endured significant setbacks due to the COVID-19 pandemic and are currently grappling with the challenges of recovery.

Adding to their woes, these struggling economies are burdened by mounting debt obligations, severely limiting their capacity to invest in crucial public goods such as education, healthcare, and social safety nets aimed at improving food security.

In a separate report, the World Bank echoed these concerns, highlighting a troubling trend where half of the world’s 75 poorest countries are experiencing a widening income disparity with the wealthiest economies, marking a “historic reversal” in development. Chief Economist Indermit Gill emphasized the gravity of the situation, noting that these countries, home to a quarter of humanity and 90% of those facing hunger or malnutrition, are currently facing what he terms potentially “a lost decade.” Gill expressed disappointment at the lack of attention from the international community, pointing out that many governments in these nations are grappling with debt-related challenges.

Drawing attention to success stories such as South Korea, China, and India, which have transitioned from borrowers to economic powerhouses and are now contributing to the International Development Association (IDA), the World Bank’s chief economist stressed the importance of financial support from wealthier nations to the poorest countries. He emphasized that achieving global prosperity and peace necessitates leveraging every possible source of economic potential, underscoring the urgency of not ignoring a quarter of the world’s population.

Living comfortably as a single person in major U.S. metropolitan areas demands a substantial median income, averaging at $93,933, as per a recent analysis by SmartAsset. The term “comfortable” is defined within a 50/30/20 budget framework, which allocates 50% of monthly income to necessities such as housing and utilities, 30% for discretionary spending, and 20% for savings or investments. This analysis is based on extrapolations from the MIT Living Wage Calculator.

For the 25 U.S. cities with the highest cost of living, SmartAsset delineates the income requisite for comfortable living:

1. New York City: $138,570
2. San Jose, California: $136,739
3. Irvine, California: $126,797
4. Santa Ana, California: $126,797
5. Boston: $124,966
6. San Diego: $122,803
7. Chula Vista, California: $122,803
8. San Francisco: $119,558
9. Seattle: $119,392
10. Oakland, California: $118,768
11. Arlington, Virginia: $117,686
12. Newark, New Jersey: $116,646
13. Jersey City, New Jersey: $116,646
14. Long Beach, California: $114,691
15. Anaheim, California: $114,691
16. Honolulu: $111,904
17. Los Angeles: $110,781
18. Aurora, Colorado: $110,115
19. Portland, Oregon: $110,032
20. Riverside, California: $109,408
21. Atlanta: $107,453
22. Sacramento, California: $104,790
23. Raleigh, North Carolina: $102,752
24. Gilbert, Arizona: $102,752
25. Glendale, Arizona: $102,752

New York City tops the list with a requirement of $138,570 for a single person to live comfortably, while Houston ranks the lowest among major U.S. cities examined, necessitating $75,088.

The analysis reveals that major coastal cities, including Los Angeles, Honolulu, San Francisco, Seattle, and Boston, demand incomes exceeding $110,000 for single individuals to live comfortably. These cities are known for their high living costs, particularly in housing, as reported by The Council for Community and Economic Research.

California’s housing shortage exacerbates the situation, contributing to 11 of its cities being among the most expensive places to live, thus necessitating higher salaries. While employers in high-cost cities often offer above-average salaries to attract and retain talent, housing expenses can challenge the maintenance of a 50/30/20 budget.

In New York City, for instance, a third of residents allocate half their income to rent, according to the Community Service Society. Residents often adjust other aspects of their budgets, such as foregoing homeownership or reducing discretionary spending, to cope with high housing costs.

Living alone in large cities incurs what can be termed a significant “singles tax,” as individuals face elevated costs for necessities like food, shelter, and transportation.

Consumer prices experienced a 3.1% increase in January compared to the previous year, a notable deceleration from the prior month but falling short of the anticipated larger cooldown, according to a report released on Tuesday by the Bureau of Labor Statistics. The slowing inflation trend brought some relief for the Federal Reserve as it evaluates potential interest rate adjustments.

Core inflation, a significant metric that excludes volatile food and energy prices, rose by 3.9% over the year ending in January, matching the slowdown observed in the previous month. This report contrasts with a slight uptick in price hikes seen in December.

The Federal Reserve had been navigating a complex landscape due to the earlier acceleration in inflation, which complicated its strategy to ease its inflation battle through a series of interest rate cuts. Recently, the central bank opted to maintain interest rates at their current levels, choosing to monitor further economic developments before reversing a nearly unprecedented streak of rate hikes initiated last year.

The January slowdown in inflation offers a positive signal for the Fed as it approaches its upcoming rate decision in March. Despite a significant decline from last year’s peak, inflation remains nearly one percentage point above the Fed’s target.

Despite the Federal Reserve’s efforts to temper economic growth by increasing borrowing costs for households and businesses, the U.S. economy has largely resisted these measures. Last month, the economy surpassed expectations by adding 353,000 jobs while maintaining the unemployment rate at a historically low 3.7%, according to data released earlier by the U.S. Bureau of Labor Statistics.

Moreover, recent reports indicate that the gross domestic product (GDP) performed better than anticipated at the end of last year, while consumer sentiment soared in January. However, this remarkable performance may pose challenges for policymakers at the Federal Reserve in their fight against inflation.

The Fed faces the risk of inflation rebounding if it moves too swiftly in cutting interest rates, as heightened consumer demand could fuel a resurgence in price increases. Fed Chair Jerome Powell, speaking in Washington, D.C., last month, acknowledged the consistent decline in inflation over recent months and the robust hiring trends accompanying it. However, he cautioned against an overheated economy.

“We’re not looking for a weaker labor market,” Powell emphasized. “We’re looking for inflation to continue to come down, as it has been coming down for the last six months.”

He further noted, “We’re not declaring victory at this point. We think we have a ways to go.”

Rachael Gambino and Garrett Mazzeo meticulously followed the financial playbook: education, debt reduction, aggressive savings, marriage, homeownership, and starting a family—a quintessential American dream. However, seated at the kitchen table of their suburban Pennsylvania home, a property they both appreciate and feel somewhat ensnared by, they reflect on their journey, expressing reservations about doing it all over again the same way.

The couple, parents to nine-month-old Miles, has a different perspective for their son. Rachael, 33, observes, “I think a lot of Millennials were forced into saying, ‘you need a four-year degree in order to be successful,’” emphasizing the burden of significant student loan debt taken on at a young age. Concerned about this narrative, she adds, “At 18, you’re signing up to be $100,000 in debt before you even really know how to make the best decisions for yourself. I think we need to change that narrative.”

Rachael and Garrett acknowledge their fortune, both maintaining steady employment and temporarily residing with Rachael’s sister, Kristen Gambino, who helps with the mortgage. Despite these advantages, the couple feels precarious, managing their daily lives meticulously through a budget where Garrett, 35, monitors every dollar flowing in and out. Rachael questions, “This is the American Dream. But at what cost? What are we paying for the American Dream now?”

The Vibecession

In post-Covid America, an odd paradox exists: the economy appears robust, yet a pervasive sense of discontent prevails. A recent CNN poll revealed that a staggering 71% of Americans deemed economic conditions “poor,” with 38% describing them as “very poor.” This sentiment has improved marginally since the summer of 2022 when 82% perceived the economy as poor.

Various factors contribute to this economic dissatisfaction, including soaring prices, a challenging housing market, persistent inequality, and escalating debt. While inflation, reaching decades-high levels, is gradually receding, the aftermath is a landscape of elevated prices for essentials and indulgences deferred during the pandemic, such as concert tickets and vacations.

Despite Millennials making significant strides in wealth accumulation over the past four years, they endured over a decade of stagnant wages and relatively flat wealth growth. Brendan Duke, senior director for economic policy at the Center for American Progress, highlights that Millennials are the most educated generation in U.S. history, but this education came at a substantial cost. Between 1987 and 2017, the cost of attending a public four-year college surged by over 200%, leaving the average student debt for those aged 25 to 34 at $32,000.

Generational Wealth Gap

Millennials, now aged 27 to 42, have struggled to match the wealth accumulation of their Baby Boomer parents and Gen X counterparts. Raised during the economic boom of the 1990s, they entered adulthood during the Great Recession, a period that scarred their early professional lives. The recession not only made entry-level jobs scarce but also delayed the retirement plans of older workers, hindering career progression for the younger generation.

By 2016, families led by Millennials born in the 1980s were approximately 34% below their “wealth expectations.” While this gap has diminished, with Millennials now only 11% below these expectations, they face the highest debt burden across demographics, making them particularly susceptible to economic shocks, such as a pandemic.

The Myth of the Nest Egg

The quintessential American Dream often centers around homeownership as the key to wealth building. However, in the Covid-era economy, this dream has transformed into more of a fantasy. Low housing inventory, a lingering effect of the 2007 housing bubble collapse, combined with remote work trends, led to a surge in home prices between 2021 and 2022.

For Rachael and Garrett, who aimed for a 20% down payment to secure a home in 2022, the rapidly rising home prices and interest rates dealt a painful blow. Missing the low-rate window, they find themselves with a monthly mortgage payment consuming 40% of their take-home income. While interest rates are anticipated to decrease, offering a chance to refinance, the couple currently navigates a challenging financial landscape.

Renting, once seen as less favorable than buying, is now a more financially viable option. A report from Attom, a real estate data company, indicates that renting a three-bedroom home is more affordable than owning a similarly sized unit in nearly 90% of local markets in the U.S. Despite this, homeownership remains a priority for many Millennials, ingrained in them as a fundamental part of the American Dream.

Rachael and Garrett, though acknowledging their relative fortune, harbor concerns about potential financial instability. The fear of job loss or unexpected medical bills looms large, and the eventual departure of Rachael’s sister, currently a tenant, adds another layer of uncertainty to their financial planning.

Silver Linings

The economic challenges faced by consumers in the previous year, marked by rapidly rising prices and interest rates, have been taxing. However, some relief is on the horizon. Wages have outpaced prices since 2019, with Millennials experiencing an average wage increase of 14%, adjusted for inflation, between ages 29 and 38.

While this wage growth is a positive development, Brendan Duke notes that it may not fully alleviate the financial strain on workers who have become parents during the same period. The high cost of childcare often offsets wage increases, emphasizing the need for societal investments in areas like parental leave and affordable housing.

For Rachael and Garrett, the reality of childcare costs prompted a reassessment of their family planning timeline. Rachael expresses the desire to have children close in age, but financial constraints dictate a delay of at least four years before expanding their family.

Rachael and Garrett’s story reflects the broader struggles of Millennials as they navigate the complex economic landscape. The American Dream, once a straightforward path to prosperity, now demands a nuanced approach and a critical examination of the traditional narratives surrounding education, homeownership, and financial stability.