US banks flag risks to consumer spending from tariff uncertainty

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Consumers remain largely resilient

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Labor market strength offers support

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Recession risks still lingering

(Adds comment from Citi CFO in paragraph 3)

By Niket Nishant

April 15 (Reuters) - U.S. consumer spending has benefited from strong wage growth and low unemployment so far, but it faces huge risks if the upheaval sparked by President Donald Trump's trade policy persists, bank executives warned.

While the steep tariffs on the trading partners of the U.S. have raised fears of price hikes, a low unemployment rate of 4.2% and a 3.8% annual wage growth in March are offering some relief.

"The consumer continues to be resilient and discerning in their spend," Citigroup (C/PN) Chief Financial Officer Mark Mason told analysts.

The comments mark a rare note of optimism in recent weeks, hinting that a recession can be averted if consumer spending remains at the current level.

"By far the most important variable is unemployment. If the labor market remains very strong, consumer credit will probably be fine," JPMorgan Chase CFO Jeremy Barnum said last week.

Revenue from JPMorgan's (JPM) consumer and community banking business climbed 4% in the first quarter, while Bank of America (BAC) fetched 3% higher revenue in its consumer banking unit. The two are the biggest lenders in the United States.

"Our clients continue to show encouraging signs," BofA CFO Alastair Borthwick said on Tuesday. "The signals at this point from the consumer are that the U.S. economy still remains in good shape."

POCKETS OF STRESS

Part of the spending momentum, however, could be short-lived as some consumers are pre-purchasing goods likely to get pricier after the tariffs.

"I've seen evidence of companies specifically advertising pre-tariff inventory.... Looking at the April data, we're seeing what would appear to be a little bit of front-loading of spending," Barnum said.

Households are also grappling with a record $18.04 trillion of debt, according to a report from the Federal Reserve Bank of New York, which may reduce their ability for discretionary purchases.

The resumption of student loan repayments could also exert pressure, according to analysts at Morningstar DBRS.

A U.S. appeals court in February ruled the previous Biden administration lacked authority to pursue a student debt relief program designed to lower monthly payments for millions of borrowers and speed up loan forgiveness for some.

Any additional strain could weigh especially on lower-income households. Wells Fargo (WFC) chief Charlie Scharf recently warned that less affluent customers were showing signs of stress, while Citi's Mason said spending had shifted toward essentials and away from travel and entertainment.

The White House has so far pushed back against recession talk despite some predictions of a contraction in gross domestic product in the first quarter and concerns about inflation.

JPMorgan (JPM) CEO Jamie Dimon said the bank's economists estimate a 50% chance of a recession, while Goldman Sachs (GS) chief David Solomon said prospects of a recession had increased.

The Bureau of Economic Analysis will release the advance estimate of the first-quarter GDP report on April 30, which could offer fresh clues about the U.S. economy. (Reporting by Niket Nishant in Bengaluru; Editing by Arun Koyyur)