NAFCU Sees Vaccines to Give Economy Shot in the Arm
NAFCU economist says the current retrenchment will give way to recovery later this year if the pandemic abates.
Consumers are likely to spend and borrow more heavily by mid-year if vaccination rates allow their activities start returning to pre-pandemic patterns, a NAFCU economist said Wednesday.
When vaccinations bring down cases, NAFCU Chief Economist Curt Long said he expects people will start returning to offices, traveling and engaging in other pre-pandemic activities.
“We’re just watching the vaccine distribution very closely,” Long said. “That’s where all the optimism is.”
“I’ve been encouraged by what we’ve seen in the last week or so. It seems like the pace is starting to pick up,” he said. “It’s becoming available to broader categories of people, which hopefully should improve the pace as well.”
In the meantime, Long said the continuing rise in cases is likely to further dampen economic activity.
A recent Fed survey of bank loan officers showed only 4.4% eased standards on credit cards and only 3.8% eased standards on auto loans. Data from a NAFCU poll of members last August showed credit unions were also tightening consumer lending standards, but not as broadly as banks.
However, the tighter underwriting standards have not been making as much of an impact as overall household belt-tightening.
“The demand is not there to make much of a difference,” he said.
Member retrenchment during the pandemic can be seen from NCUA data, which shows the average member added $1,575 to their savings in the 12 months ending Sept. 30, while the average credit card holder cut their balances by $205.
Savings per member rose 14.2% to $12,359 as of Sept. 30, while the average credit card account balance fell 6.8% to $2,817.
Long said the Fed’s G-19 Consumer Credit Report showed card balances at credit unions have been falling since March as most households are cutting spending and paying down balances more aggressively.
“This speaks to the stark differences in many households’ experiences during the crisis,” he said. “A lot of households are in a real good position to pay down balances, and they have been doing so; others obviously are not.”
Long’s comments came after the Fed released its Beige Book survey on Wednesday, which said economic activity improved “modestly” from Nov. 20 to Jan. 4 in most of the Fed’s 12 districts. Other observations from its districts included:
- Some districts noted declines in retail sales and demand for leisure and hospitality services, largely owing to the recent surge in COVID-19 cases and stricter containment measures.
- Auto sales weakened somewhat since the previous report, which showed changes from Oct. 9 to Nov. 20, 2020.
- Residential real estate activity remained strong, but accounts of weak conditions in commercial real estate markets persisted.
- Banking contacts saw little or no change in loan volumes, with some anticipating stronger demand from borrowers in the coming months for new government-backed lending programs.
- A growing number of districts reported a drop in employment levels since November.
- Home prices continued to climb, driven by low inventories and rising construction costs.