The credit card issuer Synchrony Financial says it isn’t seeing many signs of trouble among consumers despite mounting fears of a recession among investors and economic observers.
Consumers are managing their finances “incredibly well,” shifting their spending patterns somewhat due to inflation but staying resilient and continuing to pay their bills, according to Synchrony Chief Financial Officer Brian Wenzel.
“We continue to be very encouraged by the strength of the consumer,” Wenzel said in an interview after the company reported its quarterly earnings. “The consumer has shown a willingness to continue to spend, continue to manage their finances.”
The comments go against
Heavier
It also saw a slight uptick in loan delinquencies, with 2.74% of its loans being late by at least 30 days, up from 2.11% a year earlier. But late payments remain far below their pre-pandemic levels of more than 4.4%, and Wenzel told analysts the company is not seeing “any real signs of a broad-based deterioration.”
One major factor behind consumers’ resiliency is the job market, Wenzel said, pointing to the country’s 3.6% unemployment rate along with wage increases that are partially offsetting price increases.
The Pittsburgh company expects a slowdown in 2023, but executives say they don't think it will prove severe or have an outsized impact on the banking industry.
Many consumers also continue to have elevated savings levels, he said, thanks partly to stimulus funds they may have saved up, forbearance on student loans and decreased spending tied to working from home.
That, combined with
“People are trying to overlay normal recessions or normal periods of time into this period,” Wenzel told American Banker. “You know, we had a recession two years ago that was like nothing we ever saw before.”
As the cycle proceeds, Synchrony is monitoring customers’ spending patterns and repayment trends for any warning signs.
But consumers’ overall spending levels haven’t changed, even as the categories they spend money on shift somewhat. Consumers are making “wise choices,” Wenzel said, such as substituting cheaper products to stay within their grocery budget, but not meaningfully changing their behavior.
Strong repayment trends and spending volumes prompted a mild improvement in the company’s loan growth guidance, with Synchrony saying it expects its loan book to grow by more than 10% this year instead of around 10%.
Net earnings fell 35% from a year earlier to $804 million as the company added $724 million of loan-loss reserves to account for growth. The year-over-year comparison was also affected by a reserve release of $194 million in the second quarter of 2021.
Synchrony overall had a “solid quarter” and beat consensus estimates despite investors’ worries that the economy may tip into a recession and credit troubles could emerge, according to Autonomous Research analyst Brian Foran.
“Clearly there are recession risks on the horizon, and if those become more tangible, management will adjust,” Foran wrote in a note to clients. “But for now it was steady as she goes.”
