New Economic Pressures: We're All Feeling It, Aren't We?
Inflation frustration is something CUs can tap into and empathize with when it comes to finding solutions for members.
The past couple of months have felt like those few days before you have to drink that gross stuff to prep for your upcoming colonoscopy: You’re eating, drinking and existing as you normally do, but there’s a tiny feeling of dread and sense of rough times ahead. Experienced colonoscopy adventurers understand this feeling.
Someone texted me recently, “What market trends do you foresee impacting the CU industry in the next 3 years?”
I immediately responded, “Off the top of my head it’s all lending related: inflation, interest rates, high home prices.”
I didn’t know if that was the right answer, but it’s what my gut said based on our recent economic reporting.
I brought up this texted question during an editorial meeting and we began looking at what was possibly making us, credit union executives and members feel uneasy – even though the economy is in fact technically doing great.
Digging around our brains and online, we came up with the typical answers: Gas prices, interest rates, inflation, auto prices and the cost of groceries, housing and utilities is all going up as inventory remains iffy.
We’re noticing little, and sometimes big, reminders everywhere that things are more expensive or items we once purchased aren’t available anymore.
For instance, I ran into a grocery store recently and one lime cost $1.87. I still bought them because, you know, homemade margaritas had to be made. Still, that seemed high. We have all gone grocery shopping for our normal items such as vegetables, pasta, bread, cheese, chips and salsa, and once we check out we are struck that our bill is much more than it was months earlier.
We see it when filling up the car. We notice it when buying new socks. Gas and electric bills are now sticking out to us as unusually high. This time of year, we’re seeing the do-it-yourself landscape project we had planned is going to cost a lot more because of the supplies we’ll need from Home Depot.
I asked a group of my lovely, nerdy web-developer friends on Slack if anything has stood out to them as being more expensive lately. They all agreed on one thing: Board games. I did some digging and found out that yes, board games are 20-40% more expensive than a year ago due to the increased cost of supplies and a dramatic rise in shipping costs.
We are getting pings and pokes in the brain in our daily lives that indicate an opposite reality to what the overall economic numbers are telling us: Unemployment is down, businesses are investing, organizations are hiring, people are spending more and even wages are rising. The sun is shining, and COVID-19 cases and deaths are at their lowest points in a long time. By the way, we’re probably heading into a recession.
In late March, U.S. Federal Reserve Chair Jerome Powell said he believes the Fed’s monetary policy can slow down inflation and achieve some kind of “soft landing” for the economy to avoid a recession.
Former President of the Federal Reserve Bank Bill Dudley believes Powell’s goals aren’t achievable.
In a Bloomberg opinion piece published March 29 he wrote, “I disagree with both. The Fed’s application of its framework has left it behind the curve in controlling inflation. This, in turn, has made a hard landing virtually inevitable.”
As of this writing, credit union economists announced they are meeting to revise/lower their economic forecasts for the rest of 2022, and potentially into 2023, due to lower numbers of economic growth they’re now witnessing, with loan growth numbers slowing and interest rates rising faster than expected.
To add to the pile, the Mortgage Bankers Association reported those applying for mortgages are finding payments less affordable than at any time since the end of the Great Recession. According to our reporting and the MBA’s Purchase Applications Payment Index, the national median payment applied for by mortgage applicants was $1,653 in February, up 8.3% from January’s $1,526. And that is well north of the median amount of $1,316 in February 2021.
MBA Assistance Vice President for Housing Economics Edward Seiler said, “Low unemployment has spurred strong income growth in early 2022, but homebuyer affordability has decreased due to the quick rise in mortgage rates amidst steep home-price growth.”
In a post on Twitter, former Secretary of the Treasury during the Clinton administration Lawrence Summers warned, “There’s a first time for everything, but over the past 75 yrs, every time inflation has exceeded 4% and unemployment has been below 5%, the US economy has gone into recession within 2 years. Today, inflation is north of 6% and unemployment is south of 4%.”
Therefore, we’re not crazy if we are feeling some kind of push-pull of “things are great!” and “things are terrible!” Because, it seems to be a good and potentially accurate summation of the economic reality credit union members are possibly or probably experiencing.
Meanwhile, behind the scenes at your local gas station, there are changes happening with Visa and Mastercard.
As stated earlier, the price of gas has increased well beyond the prices seen in 2009 and 2010 in many states. As numerous gas stations limit Visa purchases at the pump to $125, the credit card companies have documented consumers needing to conduct two transactions in order to fill up their tanks.
According to reporting by Bloomberg, Visa and Mastercard are increasing their fraud-liability threshold to $175 per fuel transaction beginning in May for consumer cards. Mastercard will also increase its threshold from $350 to $500 for commercial cards.
The card companies stated there will be an increase in fees charged for online purchases from 0.1% to 0.2% of the purchase price.
Again, members and all the rest of us are truly experiencing an uptick in the cost of nearly everything we do on a daily basis.
It’s a frustration that I believe credit unions have the ability to tap into and empathize with when it comes to finding solutions for members. That’s because your frontline employees, your executives and your members are feeling the same economic tightening, just at maybe different levels of tension.
One member of my group of Slack friends put his thoughts on the economy this way: “I want to care. But I just feel defeated. Then I realize that’s intended. Then I get more defeated. Then I get mad, but I don’t know at whom to direct my anger, then get defeated.”
This is a person who has a couple of university degrees, has a good job, owns a home and has very little debt. Yet, he still feels a panic that he could easily be pushed out of the non-extravagant life he leads at any moment.
I’m unclear on what the message to members should be. Maybe it’s simply, “Tell me what you need and let’s figure it out together.”
Michael Ogden Editor-in-Chief mogden@cutimes.com