Astonishing: GDP Predicted to be 7.4% This Year… But Won’t Last For Long.
Nearly spilled my coffee when I saw the headline in Reuters that the Congressional Budget Office was projecting a U.S. GDP of 7.4% for 2021. Reuters explains “The non-partisan CBO said in updated forecasts that it expects gross domestic product growth to reach 7.4% in 2021, based on fourth-quarter comparisons, double its forecast for 3.7% growth from February.” However, this rebound soon comes back down to earth.
The CBO expects growth to taper off to 3.1% in 2022 and to just 1.1% in 2023, rising to 1.2% for 2024 and 2025. And, if anyone can put much faith in predictions a decade out, the CBO predicts GDP of 1.6% for the 2026 to 2031 period. Why the sudden and prolonged foot on the brakes? The CBO sees the lack of workforce growth as a constraining factor.
Speaking of Increasing the Workforce
The Wall Street Journal carries the headline “Americans Are Leaving Unemployment Rolls More Quickly in States Cutting Off Benefits.” The article explains “The number of unemployment-benefit recipients is falling at a faster rate in Missouri and 21 other states canceling enhanced and extended payments this month, suggesting that ending the aid could push more people to take jobs.”
The WSJ notes Federal pandemic aid bills boosted unemployment payments by $300 a person each week and extended those payments for as long as 18 months, well longer than the typical 26 weeks or less. The benefits are set to expire in early September, but states can opt out before then.
The article quotes Aneta Markowska, Chief Financial Economist at Jefferies as saying: “You’re starting to see a response to these programs ending. In recent months employers were having to compete with the government handing out money, and that makes it very hard to attract workers.” Having said that, not everyone can easily go back to work.
The article speaks of a mother with two special-needs sons who lost her work-from-home job because of the pandemic, and has been trying to find another that will allow her to earn a living while tending to the needs of her disabled children.
The Fed’s New Framework for Inflation
The Washington Post carries an interesting read headlined “Why the Fed Has a New Framework and Why It Matters.” The article looks at the Federal Reserve’s efforts—dating back to 2012—to boost the annual rate of inflation up to 2% and its willingness to put up with temporary boosts for inflation in order to reach that multi-year average of 2%. (As noted in the first item, above, the CBO doesn’t see that average of 2% happening for at least the next 10 years.)
The Fed has also recalculated how it considers unemployment, with the article explaining “As part of its new framework, the Fed describes full employment as a ‘broad based and inclusive goal.’ That’s shorthand for looking not just at the aggregate unemployment rate but at labor-market indicators for different segments of the population, including Black unemployment.
In contrast, the Fed, using its traditional approach, raised interest rates in December 2015 for the first time since the 2008 financial crisis, in part because the overall unemployment rate was 5%, close to where the Fed had its estimate of full employment, 4.9%. But Black unemployment was 8.5%, according to revised data. Taking that gap into consideration could help reduce racial inequality.” All of this seems to point to continued low interest rates, despite projected upticks in prices as the economy rebounds from the pandemic.
“Ripple Effects from Supply Chain Woes Affecting Credit Limits.”
That’s the headline for an article in NACM News about rising prices and scarcer availability with choking points in the supply chain as businesses gear up as we emerge from the pandemic. The article notes that in addition to rising prices, businesses often have an attitude of buying even more than they currently need if they find availability with a supplier.
The article quotes Ron Shepherd, CICP, and Director of Business Development and Membership for FCIB, as saying: “What is that buyer going to do? They’re going to go to their last remaining supplier, and if they have capacity, they’re going to say, ‘ship me anything you can.’” As a result, customers are stretching their credit limits and asking for more. Shepard says: “It causes concentrations of orders that require higher credit limits.”
The article explains that “Some credit professionals have noted they cannot accommodate these requests. The sheer volume of orders requires credit limits that are too high for creditors to accommodate,” noting that some organizations are purchasing credit insurance to increase customer’s credit limits.
“The Millennial Mortgage Mess.”
That’s the headline in an interesting article in National Mortgage Professional. The story is worth a read just for the ‘never thought of that’ point made in its first two sentences: “In the past we never named generations. That changed when former People Magazine editor Landon Jones named the ‘Baby Boom Generation,’ and now the pattern has stuck.”
Beyond that opening, the article dives into the challenges that Millennials (those born between 1982 and 2000) have faced in achieving the American dream of home ownership. While noting an uptick in mortgage applications for Millennials, the article reads: “Lenders should take note. In 2020, more than 18 percent of millennial renters said they planned to rent forever, up from 12 percent in 2019 and 11 percent in 2018, with most saying they simply cannot afford homeownership. … Homeownership has always been a vehicle for wealth creation in America but as the wealth gap widens between homeowners and renters, some millennials feel they have missed the boat all together.”
The article notes home ownership rates as of age 30 for the following groups: 42% for Millennials; 48% for Gen X; 51% for Baby Boomers. On a brighter note, Millennials now see lenders in a more positive light. The article reads: “As this current generation of home buyers has aged, they have seen that lenders are not evil as informal opinion believed ten years ago. In fact, the vast majority of lenders are very helpful. This wave of new buyers will have the opportunity to build and pass on wealth, and shape the market for years to come, many by using a reputable lender to help finance a home.”
Ray Peloso, Chief Customer Officer at Finvi, brings 25 years of diverse consumer lending experience, having held executive leadership roles at Royal Bank of Scotland, Capital One, Citibank, MBNA and Katabat. Ray’s prior expertise in consumer credit and lending underpins a clear vision and understanding of the challenges faced by our clients in today’s rapidly evolving digital economy.
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