For five years, U.S. consumers have been undergoing a massive debt reduction: Paying off credit cards, paring back spending and building up funds for a rainy day. Investors, though, have been looking to see whether Wall Street banks are lending for a positive sign that the economic recovery is picking up steam.
Last week, investors got a sign—though not quite as positive as they may have hoped. For banks like JPMorgan Chase and Bank of America—which each reported "core" loan growth in the single-digit percent range—the uptick in borrowing came from high net-worth clients in their brokerages, not from the consumer banks.
"Households have focused on improving their financial position, even with historically low interest rates," said Marty Mosby, director of bank equity strategies at Vinings Sparks Asset Management.
Loan balances serve as a barometer of consumer sentiment: It takes confidence in one's job security and personal finances to borrow for a big purchase or a new venture. Data from the third quarter showed wealthier clients tended to have more of that confidence.