Market Pulse

In this episode of the Market Pulse monthly, we focus on the 2021 outlook for the U.S. economy and credit -- both consumer and small business. This transcription is edited for brevity. Listen to the full podcast for more great insights.

Theresa: How does the announcement of a vaccine nearing trial completion impact your outlook into 2021?

Cris deRitis: The announcement of the vaccine(s) is certainly a positive in terms of the economic outlook. It's going to help restore consumer confidence and business confidence. Just the fact that a vaccine exists, even if it takes some time to come to market and be fully distributed, is positive from a public health and a social perspective. The economic outlook is certainly an improvement to the trajectory of the forecast going forward. Of course, that does have to be tempered with the recent spike in the caseload. The sooner we get that vaccine distributed, the faster we'll be able to restore confidence and get the economy back on a more self-sustaining recovery path.

Theresa: With the continued pandemic-led uncertainty combined with our recent elections, what is the outlook on any additional stimulus? That's a topic we've touched on in previous podcasts, but what do you see as our outlook for additional stimulus now?

Cris deRitis: Stimulus, in terms of the short-term outlook of the economy, is critical. It's not a question of if we will get a stimulus, it's more a question of how much. It's very likely to come after the new Congress takes office, as well as after the new president is inaugurated. So, we're looking at a February timeframe at this point. The amount of stimulus is really dependent on the Senate. What happens with the elections in Georgia? If the Congress remains split, then we're looking at a smaller stimulus package -- perhaps closer to between $500 billion to a trillion dollars of support for households and small businesses. If the Democrats were to take control of the Senate along with the house, then it could be a much larger package. And, certainly that would have implications for the amount of growth we could expect both in terms of output and employment.

Theresa: In the latest quarterly Senior Loan Officer Opinion Survey, I noticed that there's a reference to continued tightening of loan underwriting standards by banks -- although far less in Q3 than we saw in Q2. Do you see that tightening continuing through Q4 and into 2021?

Cris deRitis: Yes, I do think banks will continue to remain on guard in Q4, and certainly as they look at the rise in COVID cases. That's front and center in terms of the outlook, at least in the short term. They may be encouraged by the announcement of the vaccine(s), but we have to wait and see what the actual path or trajectory of the vaccine is. There are going to be additional approvals, and we're going to need some time to actually have it distributed. On top of that, the stimulus is the big wild card when it comes to consumer credit. We are going to see defaults. It will likely be the result of inadequate stimulus or stimulus that is pushed out too far into the future. So, I do expect that banks will remain guarded, at least for the short term. And then as we go into Q1, and we start to see things hopefully improve at that point, they will be more willing to ease up on lending standards and provide additional credit support to the economy.

Theresa: Chris, what trends are you seeing in the consumer credit and lending data? Anything jumping out since our last podcast?

Chris Walker: Yes, a few things. Overall, debt is up about 0.8% when looking back to the pre-COVID period. And delinquencies have been steady overall for the last several weeks, with the last ten weeks at about 0.6%. And when we look at certain products like auto and first mortgage, they're very strong. Both of those products are up compared to the pre-COVID period. Auto is up about 1.9%. And most recently, we've been seeing a delinquency rise in auto. It's still well below the pre-COVID level, but we have been seeing that trend. Mortgages are up about 2.1%. So, very strong originations for both of those.

Theresa: David, let's shift to expectations for spend in the near term and into 2021. What are you seeing in the forecast?

David Fieldhouse: When we want to look at spend, retail sales is going to drive that overall. We are producing forecasts in that space. And I really think it's very relevant for credit data. Obviously, we saw a dip in the summer and then a bit of a rebound in Q3. So, retail spending overall is kind of back to the level it needs to be. And we're actually expecting a good Q4. There are bright spots. Spending is very strong in online stores. And we think ther...

In this episode of the Market Pulse monthly, we focus on the U.S. economy and credit insights -- both consumer and small business. This transcription is edited for brevity. Listen to the full podcast for more great insights.

Theresa: Let’s start with the macro economy, and more specifically, fiscal stimulus. Chris, it seems things are changing by the day, and at times, by the hour. Are we going to get additional stimulus? And if so, when and what might it look like?

Cris deRitis:

That's a great question, Theresa. It's really critical to the economic outlook, certainly in the short term. I think the question really is when. I'm fairly confident that we will get some fiscal stimulus because the economy remains weak, although there's been some improvement. We are putting more people back to work. Still, we have over 800,000 people filing for unemployment every week. So, clearly there is a need for some additional support. The timing now really depends on the election outcome. I believe there's a chance that we are able to reach a deal before the election, and every day we get another piece of information that sounds encouraging at times; It sounds discouraging other times. So, it's possible that we get something before the election, but my working assumption right now is that it will be after the election. And then, the precise timing will depend on who actually wins the election.

Theresa: I know I've seen updates around whether we'll get another $1,200 stimulus check and potentially extended unemployment benefits. You and I have discussed the aid to state and local governments. Can you help us understand how each of those elements might go?

Cris deRitis:

I think all of these elements are still on the table. Again, there's negotiation going on, on both sides with the house Democrats and the Senate Republicans in the White house, having all different views. I think each one of these elements or some flavor of these elements is still likely to show up in the final package.

I think the debate is really around the size of the checks. Maybe the qualifications on the amount of money that might be granted for families with dependent children or older dependent children. So those are really the details where we have some other debate, but I do expect to see some form of check going forward.

The extended unemployment insurance benefits have been critical as well. That's the extra $600 a week that folks were getting as part of their unemployment insurance package. That extension ran out at the end of July, essentially. At this point, you have families really making do with the standard benefit and with whatever savings they've accumulated. And that means that they are now vulnerable. At this point, as we were looking at October, November, some of those savings are running awfully low.

Theresa: Last time we spoke about the potential shape of the recovery, and even during the presidential debate a few weeks ago there, the topic of a K-shaped recovery came up. Do you still see the K-shaped recovery? And help us understand a little bit how that's looking.

Cris deRitis: Unfortunately, I do. Another way to put it is that we have a two-track type of recovery. You have one part of the population that is doing relatively well – or even great. But some households, some individuals are certainly doing better than others. So, the recovery has been much stronger for those folks who have jobs where they can work from home. Higher income and higher wealth households are doing better. More highly educated people certainly have more opportunities. Their stock market portfolios have recovered in terms of their values, house prices continue to rise.

On the other hand, you have the 75% of the population or so who have to show up to work. They can't work from home very effectively. And they may be working in industries that were very hard hit by the COVID-19 crisis. So, if folks are working in leisure and hospitality or bricks and mortar retail, the economic recovery is certainly much, much slower. And they may not have savings or some of the stock market wealth that I alluded to. So, I am concerned that we will have even more inequality, at least for a while, as we work through this recovery. And that’s all the more reason why we need additional fiscal stimulus, particularly to ensure that those folks who are struggling to move ahead in this recovery have the support they need to put food on the table and meet their obligations. And at the same time, give them some breathing room to look for a job or to start a business.

Theresa: Now we're going to shift to focus more specifically on consumer credit, both current trends and outlook. Chris, is there anything in the data that ...

Join the Risk Advisors Group at Equifax as they discuss the current state and future trends of interest rates and their profound impact on the U.S. economy. The conversation delves into the Federal Reserve's strategies in response to inflation and economic shifts, exploring how these changes affect various sectors including banking, mortgages, and auto financing.

In this episode of Market Pulse, we discuss the U.S. economic outlook, the American Jobs Plan and consumer credit trends with Cris deRitis, deputy chief economist at Moody's Analytics.

This transcription is edited for brevity. Listen to the full podcast for more great insights.

Theresa: So let's start with an update on the U.S. economy. What do you see on the horizon or what is important for our listeners to know about today, Cris?

Cris deRitis: The U.S. economic outlook is particularly strong. It keeps getting stronger or we keep updating our forecast with a more optimistic and positive view. And, really a couple of things have gone right over the last three months. First of all, we have the vaccination campaign that has really surpassed our expectations. We're vaccinating around 3 million people a day now throughout the country and opening up vaccination schedules to people who are younger. That certainly is helping to keep the spread of the virus under control and rebuild some of the consumer confidence. There's a lot of pent up demand that's out there. People are itching to get out. They're looking to shop. I hear that hotels are booked up throughout the summer in many of the key vacation spots. That's going to continue to push the economy forward.

The second factor in the outlook is the stimulus packages that were passed in December and February. Those checks are going out now or have gone out, and that is certainly putting more money in folks' pockets. That is also contributing to some of the upgraded growth that we would expect in 2021. The Moody's Analytics’ outlook calls for about 6.4% growth in GDP in 2021 and then still very strong growth around 5.25% in 2022.

Theresa: A number of times over the past year, we've talked about the K-shaped recovery. The upper leg of the K keeps going higher and the lower leg keeps going lower. Will we start seeing less divergence of the two economies?

Cris deRitis: We are starting to see perhaps the bottom leg of the K coming back up. The leisure and hospitality jobs are being added back. Those do tend to be lower income individuals. So, a strengthened labor market down at that part of the K is certainly beneficial. But at the same time, we are continuing to see growth in the upper part of the K as well. The stock market continues to go up. Housing prices continue to rise as well. So we might still see quite a bit of divergence there between those two legs, but at least the bottom seems to be moving upward.

Theresa: Let's talk a little bit more about that fifth round of stimulus. What are you seeing, Cris?

Cris deRitis: So this is the proposed American Jobs Plan. It's been pitched in some sense as an infrastructure bill, but it's much more than just traditional infrastructure. It's about funding initiatives that hopefully would increase productivity overall and really continue economic growth or long-term economic growth. So I view it as designed, in part, to fill some holes that we've had in our budget for a long time. So infrastructure spending, I think everyone agrees on both sides of the aisle. I don't think it is controversial that we need to replace some of our roads and bridges. And, there are some gaps in terms of our infrastructure spending on airports and ports. So we just need to modernize. So there's about $600 billion or so allocated within this $2.3 - 2.6 trillion package.

On top of that, you have other types of infrastructure, which I think are also equally valid. Rural broadband, for example. So, I don't think there's any real controversy around that. We want to, again, modernize our infrastructure in a way that can help more people access the labor market. And so it's not just about the roads, the physical roads. It's about the internet and being able to access the internet for school or work.

There's a lot of things in there that makes a lot of sense, but then you have some other parts where there is certainly much more debate. And, there's funding in there for elderly and disabled care. Not that I don't think, again, anyone really disputes that we need to fund those things. But does that funding belong in this type of infrastructure package? And is this necessarily a spending that would be for investment and improving the productive capacity of the economy? Or is that more of an entitlement taking care of folks who we have promised through our Medicare, Medicaid programs to provide an adequate level of care in their old age, or as needed?

For more on this interview, listen to our full podcast. To access the latest consumer credit and small business insights, contact your Equifax account executive today, or visit us online at equifax.com/business. You might also enjoy checking out