The heads of some of Wall Street’s biggest banks have issued a cautious outlook for the global economy as consumers spend on savings and customers lower their expectations for 2023.
Top managers at Goldman Sachs, Bank of America and JPMorgan Chase offered their views at an industry conference Tuesday. “When I talk to customers, they sound extremely cautious. Many CEOs are watching the data and waiting to see what happens,” said David Solomon, Goldman’s managing director.
Solomon said customers seemed “tired after a very volatile year”.
The comments add to the sense of anxiety among business leaders over the worrisome outlook for the global economy, which faces a host of economic and geopolitical challenges, including a breakneck pace of interest rate hikes with central banksthe stuttering reopening of China’s economy and Russia’s war in Ukraine.
Solomon said he was “a bit more cautious” about the economy than his investment bank’s own economists, who predict the U.S. will narrowly avoid a recession in 2023.
“I get a lot of questions about China and its relationship with the US, Europe’s economic trajectory and, of course, recession risks. But I don’t hear panic. Balance sheets are strong. Even with higher interest rates, investment-grade markets remain open.”
Bank of America CEO Brian Moynihan told the event that U.S. consumer savings peaked in April after many people received tax refunds, but that most Americans still had more in the bank than before the pandemic, a dynamic that was likely to hold as long as unemployment remained low.
“Right now they’ve been hired, and that’s very good news for the American consumer,” Moynihan said.
Marianne Lake, co-CEO of JPMorgan Chase‘s consumer and community banking division told the conference that “the U.S. economy remains strong,” but that the bank’s management has become more optimistic over the past three months about “a modest recession” in the near term.
“So the probability of recession has increased. We’re actually looking for it right now,” Lake said.
Investors continue to weigh the outlook for monetary policy from the US Federal Reserve. Despite Federal Reserve chairman Jay Powell last week to lay the foundation for policymakers to scale back the scale of rate hikes at the December meeting, stronger than expected jobs numbers and data showing growth in the huge services sector subsequently underlined the risk that inflation could remain persistent and elevated in the coming months.
Solomon said Goldman’s clients had revised their financial forecasts downward “but not dramatically” as they prepared their 2023 corporate budgets.
“We’ve seen customers shift their focus away from supply chain resilience and towards keeping headcount down,” he said.
Regardless of the trajectory of the global economy, JPMorgan CEO Jamie Dimon said the U.S. banking system was well capitalized to weather any struggle. “The American banking system is incredibly healthy in a million different ways. Our capital cup is overflowing,” he told CNBC.
Wall Street banks are also gearing up for a bonus season that is likely to highlight the extreme feast-until-famine nature of investment banking. After a blockbuster 2021 for dealmaking and payactivity has fallen dramatically this year.
Solomon said a hoped-for pick-up in capital markets activity in areas such as new listings had not materialized this quarter. Overall, this year Goldman will “seek the balance between appropriate pay for performance mindset with a focus on talent retention”, he said.
“The labor market is still surprisingly tight and the competition for our talent, especially top talent, is as strong as ever,” he said.
