With inflation soaring and the Federal Reserve planning to raise its benchmark overnight lending rate, the federal funds rate, several times this year, investors are keeping a close eye on consumer financial health. Not only do many banks and fintech companies do a lot of business with consumers, consumer health is critical to the health of the economy as consumers buy goods and services, which drive business activity , and spend in many other ways. Recently, JPMorgan Chase (JPM -0.93% ) released its first quarter earnings report. Because JPMorgan Chase is the largest bank in the country, it has a good handle on the state of the economy. Here’s what new data from the nation’s largest bank tells us about the state of the consumer.

Spending slows, credit remains healthy

A good way to glean consumer insights is to look within JPMorgan’s consumer and community banking division. This division is one of the bank’s core businesses, offering mortgages, auto loans, credit card loans and other personal and small business banking loans.

Data source: JPMorgan Chase. Table by author.

Lending in nearly all of JPMorgan’s consumer lending categories was up at the end of 2021. But whether that’s due to soaring inflation or planned Fed rate hikes, consumer spending appeared to decline in the first quarter of 2022. Auto loans were roughly flat, credit card loans – which had surged at the bank in the previous quarter – fell 1% in the first quarter, mortgage loans fell 5% and bank lending to individuals and businesses fell about 7%. Higher rates and more upcoming rate hikes likely played a big role in this sudden drop. Earlier this month, data showed mortgage applications fell more than 40% from April 2021, with the mortgage rate on a 30-year fixed mortgage rising above 4.7%.

The good news, at least for now, is that consumer credit quality is still quite strong. In none of the previous consumer loan categories has there been a large increase in net write-offs, which is debt unlikely to be collected and a useful measure for assessing potential and probable loan losses.

JPMorgan Chase net charge rate by loan category.

Data source: JPMorgan Chase. Table by author.

Net auto and mortgage write-offs as a percentage of total loans in each category are still extremely low. Credit card charges have started to rise, but at 1.37% they are still extremely low. Personal and commercial banking net charges increased from 0.91% to 1.07%, which is a decent increase, but lending volume is also down in this category, which is probably inflating a bit movement. If you look at trends in 30+ day delinquencies in the auto, mortgage, and credit card categories, they’re even better, with mortgage and auto delinquencies down slightly from Q4 2021 and credit card delinquencies. credit up slightly.

What to expect

With the Fed signaling it will raise the fed funds rate at each of its next six meetings, the consumer is headed for the eye of the storm, and based on JPMorgan data, it looks like the consumer has been slowed down. by inflation or either prepare for what is to come.

But while JPMorgan Chase CEO Jamie Dimon expressed concern about the future, he said the consumer is still in great shape for now: “The consumer has money. He’s paying down the debt credit card Trust is not high, but the fact [is] they have money, they spend their money. They still have $2 trillion in their savings and checking accounts, companies[es] are in good shape. House prices are on the rise. The credit is extraordinarily good.”

There is no guarantee that the economy will plunge into a recession. After all, the consumer is healthy, inflation could peak, and the Fed could slow down its rate hike plans. But with consumer spending starting to slow down a bit and the consumer heading into a much tougher environment, the financial health of the consumer is going to be an important factor for the markets.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.