6/3 Market Pulse, Your Questions Answered
6/3 Market Pulse, Your Questions Answered
As we emerge from the pandemic, small businesses are integral to the health of the post-COVID economy. For our June 3 Market Pulse webinar, our panel of experts discussed the future of the post-pandemic small business economy. This month’s presenters included Evan Leaphart, Founder and CEO of Kiddie Kredit; Robert Wescott, Founder and President at Keybridge; Sara Briscoe, Senior Statistical Analyst at Equifax; and Tom Aliff, Senior Vice President of Data Analytics and a Consulting Leader at Equifax.
Presenters followed up with audience members’ questions about the post-pandemic economy, inflation, delinquency trends, and more. Robert Wescott, Evan Leaphart, Sarah Briscoe, and Tom Aliff answer those questions below.
Jump ahead to a specific topic:
As we think about economic recovery, and as we think about an equitable economic recovery, what's your perspective on that?
Evan Leaphart: In terms of recovery, it's multifaceted because you have on one end retail investors that have enjoyed the pandemic, but then there's other individuals where it's just been a very tough time, especially in the hospitality sector. So going forward, it's really going to take a lot of support and that can come in the form of loans, making sure that these PPP loans go to companies that need them. Everybody should be getting out there and supporting small businesses. Small business support is vital towards a post-COVID landscape and it takes a village. Everybody getting in and supporting small businesses and really understanding the challenges that small business owners have faced in the past year and doing our part to help them out will be key.
What does an equitable recovery look like? Or how do you think about that as we continue to move forward?
Robert Wescott: One of the really defining elements of this pandemic was the kind of shock that people had at how many people were vulnerable and could be taken down quickly by a simple thing like a virus. I think it really has changed the mindset of many people where I think there's been a shift in the direction of we're all in this boat together. When I think about the political support that rallied to give everything from PPP payments, to the $1,200 payments to people, I think there was a sense this wasn't a Democrat or Republican thing. President Trump and Republicans, when they ran the Senate, put a lot of money in the system. Then President Biden came in with Democrats, the Senate, and the White House and put a lot of money in the system.
I think the overall motivating factor was we need to think about equality. We need to think about protecting our most vulnerable people. A lot of rich people kept working as accountants and lawyers. They could work from home. However, a lot of people couldn't work from home and had jobs where they had to be in person. And I think the whole social story has shifted in the direction that we do need to take care of our most vulnerable workers.
There has been some comparison to the Roaring Twenties economy. Are we entering into a new Roaring Twenties?
Robert Wescott: 1920 started with the Spanish Flu and high death and depressed global attitudes, but we had a roaring return back in the twenties. We had a lot of innovation and the electrification of the country. We had refrigeration and indoor plumbing. These are all innovations that were brought forth. They really stimulated the economy and we had rapid growth and rapid productivity growth. That being said, we did have a good decade in the 1920s. We had a little bit of a downside, which was we had a lot of concentration of stock market wealth. And by 1929, 75% of all stocks in America were owned by the 10% richest people. And of course, that led to the stock market crash.
There are some parallels I think to the 2020s, starting with the pandemic. We have the potential for shaking the system up, shaking off secular stagnation that we have been suffering with for the last 10 years. I can see mRNA technology leading to a cure for cancer. Some big data can bring productivity gains. We have to see whether we can shake off the doldrums that we've had over the last decade. The one thing is we've got a lot of stock market wealth again, and it's just about exactly the same percentage concentration that it was in 1929. That being said, that does raise some sort of nervous parallels.
Have you been surprised that the economy seems to have bounced back more quickly than many were expecting and to what do you attribute the rapid recovery?
Robert Wescott: The economy has come back stronger than I expected. The fiscal money and all that money that we've shoved in the system, may have a legacy effect and it may have higher debt levels and higher interest costs down the road. But, it definitely helped. If you look at the comparison like the U.S. against Europe, we've done much better than Europe. We've done about three times the fiscal stimulus spending that they've done. I think that's been a big factor. And the other thing is the vaccines that we invented and manufactured quickly. If you really get down to it, it's stunning that in a 12 month window, we invented mRNA vaccines. We tested them, we certified them, they worked, and we got them in 200 million arms. We've now put the pandemic on its back heels in the U.S.
Considering that the Southeast was not as closed down as other states, do you have any theory on why the delinquency rates are higher? Tourism impact for Florida?
Sara Briscoe: It's a few different things. The Southeastern area was already elevated pre-pandemic. They had slightly elevated delinquency rates compared to other states and then going into the pandemic, they were highly affected because a lot of those economies are retail and tourism. That is why they saw a larger impact in those states. Recently, they've shown more improvement year-over-year than the other states. It's a bit of a complicated picture.
On an absolute level, the Southeast does have higher delinquency rates than other states. But you're correct that they are reopening a little faster than other areas. We are seeing a quicker improvement there, though their absolute delinquency level remains high. Also, we saw healthcare delinquencies rise quite a bit in the southern states. Obviously not so much healthcare in terms of unemployment, but the lack of elective surgeries and all those issues surrounding healthcare contribute to the rise of delinquency in those states.
Robert Wescott: If you look at the industrial organization of all of the 50 states, the top three states for traveling tourism are Hawaii at number one, Nevada at number two with the gaming industry, and Florida at number three. We fully expected to see Florida hard hit by the fact that people were nervous about traveling.
Florida became an oasis for some travelers because it opened up earlier and some people were not anxious to travel again and went to Florida. That helped Florida come out of it. However, in some ways your industrial organization or the structure of your economy is your fate. That was what put Florida under stress. By far the largest increase of unemployment over COVID was Hawaii and Nevada. It was just exactly what you had predicted, and they got slammed because people couldn't travel and were nervous about traveling. On the other hand, agricultural states like Nebraska, Iowa, and Kansas, had almost no exposure to travel and tourism and they suffered almost no increases in unemployment.
Is there any scenario where we avoid significant inflation?
Robert Wescott: There certainly are scenarios where we avoid significant inflation, and that's what makes it interesting to watch. We don't really know how this movie is going to end. However, there's no question we're going to see a surge of inflation right now. There's a shortage of semiconductor chips. We did not make 1.5 million cars that we wanted to make in the first quarter because of the lack of chips. Also, there are shortages of meat right now. We know that there is a shortage of metals. It's hard to get metal parts right now. These things are going to hit, because of the lack of cars and the rental car companies that don't have enough rental cars.
We know if you fly to Denver and you want to rent a car, you may have to pay $250 a day to rent a car, which is five times the normal cost. The big question is: is this a temporary surge that will last three months, six months, nine months? By next spring, are those surges fading away, or do they get built into inflation expectations? And, that's why I was showing that side of inflation expectations. Every extra month that goes by that inflation is 3.5% - 4.2%, someone out there is choosing the rates they're going to charge to do work for you or the fees they are going to charge for their restaurant or yoga studio, etc.
Every month that goes by that they remain high, it makes it more likely that it's going to get embedded in future price increases, but it's not at all assured. And, I'd say the economics community is about split 50/50 with about half saying it's going to be transitory and have seen it's going to be more permanent. I'm worried, I'm a little bit in the latter camp. It is going to start to raise inflation and in a more sustained way.
Do we have some findings by income bands? Are their spending patterns and credit card, debit card activity, differing with different income groups and possibly even loan originations?
Tom Aliff: Yes, absolutely. And it's definitely in-line with the question of how we've been doing our research and specifically leveraging The Work NumberⓇ employment and income database from Equifax to understand those trends. What I would say is that if the lower income groups had lost employment, or income, or had some form of disruption, they were definitely at a higher rate of impact in those categories.
However, some people in those groups were not necessarily impacted from a disruptive standpoint. It's critical to understand at the baseline where the employees and their primary income source are. And, how did that hold up and then how were they helped with the stimulus package in general? That's where a lot of that is coming in. Now, when we look at the different credit groups, we see it talks about credit and debit activity on the lower ends in the more subprime type of category. We see increases in credit scores in those categories by about 30 to 40 points on average, whereas if you move into more of the prime and super-prime, it's less than 10 points increase on average. Of course, there's less room to increase in those cases.
But on average, I would say that most consumers, assuming that they did not have a disruption in their employment or income, were faring better with respect to paying down their balances utilization. It's definitely the groups that were impacted from employment or income, or who had to take on different perspectives. Even if they did not lose their job, they had to consider childcare options if they didn't have other potential things associated with that. But, we can absolutely do more follow up on that if there would be a desire to get a little more information.
What is Kiddie Kredit and why was it important to bring it into the world?
Evan Leaphart: Kiddie Kredit is a chore tracking app that teaches kids about credit. The better job a kid does at doing their chores, the better their credit score. My reason for starting Kiddie Kredit was that I was affected by credit. I've been entrepreneurial my whole life. I saw how difficult it was for me to get access to a business loan or line of credit.
I know that there are a tremendous amount of entrepreneurs out there with great ideas, but there's no friends and family to fund and support them. How could we teach about credit before you need access to it? That way, you can actually build the business of your dreams. That was what started the conversation. I was like, “how do we do this? How can we actually teach about this beforehand?” And that was what spawned the idea for Kiddie Kredit.
Could you talk about your experience through the pandemic as an entrepreneur?
Evan Leaphart: The parents have really spoken in regards to that. The digital learning landscape has changed. Personally, I think digital learning has changed forever and a lot of our studies have shown that, too. There's a collaborative process now between the parents at home and the school. Those used to be two siloed environments. Now it's saying look, for kids to succeed in this digital landscape, parents need to be involved as well. So it's going to take companies like Kiddie Kredit and other companies that are out there to really help bridge that gap.
We're really trying to just learn from parents and teachers, too. In this past year, what were the difficulties for you? If we solve X, how would that help you going forward? The reality of it is that some kids may not have parents that are tech savvy, or have the proper tools at home. Whatever we can do to help fill that gap, it is definitely a focus for us going forward.