The IMF is predicting global growth may slow to 3.2% in 2022 and 2.7%
in 2023, down from 6% in 2021. How will the domestic economy fare
given these global headwinds? And what can US companies do to build
resilience into their 2023 plans?
Factors weighing on economies around the world
Sharing his assessment of global macroeconomics, Robert
Wescott, President of Keybridge LLC and former special Assistant to
the President for Economic Policy at the National Economic Council,
said there several factors weighing on economies around the world
and slowing global growth: high energy prices, rising inflation,
central banks raising rates, and geopolitical tensions.
Surging energy prices have hit Europe the hardest. Many
European industrial plants have shuttered due to high natural gas
prices, pushing several countries to the brink of recession. For
context, concerns about high-cost Western manufacturing have been
growing for years. But Covid and new geopolitical tensions introduce
new complications. The global economy is struggling with stark
realities like that of how autocrats like Russian President Vladimir
Putin can put military goals ahead of the economic wellbeing of
Stresses on the globalization model mean the world
environment for business is changing. More companies are
diversifying their supply chains. This might mean the
“globalization business model” is under threat.
China is still a major source of imported goods, but “China
+1” countries are gaining ground. The share of goods coming to the
U.S. from Vietnam and India have grown rapidly since 2019.
Accordingly, production costs will rise. ISM values for
manufacturing are now under 50 in most major European and Asian
countries, signaling strong chances for contraction.
Bringing his assessment to the national level, Wescott
shared that slowing global growth and changes to the globalization
business model will shape the U.S. economy in the near-term and
long-term. It's true the labor market remains a bright spot for
the U.S. economy. The unemployment rate is back to its pre-Covid
level – 3.7%. Most sectors are posting organic job growth. And
consumer spending has been another bright spot. However, it has
been sustained by households dipping into their savings. The
personal savings rate is at its lowest since Apr 2008.
Keybridge’s “Top 25 CPI Categories to Watch” measure of
underlying inflation (including items like rent, grocery, clothing,
and household operations) suggests a persistent problem, even if
energy prices and prices of new cars recede. The Federal Reserve
raised rates by another 75 basis points in November, bringing the
fed funds rate to 4.0%. The pace of increases may soon slow, but
rates are expected to hit 5.0% by March. We continue to see evidence
that the Fed’s rate hikes are hitting the economy. Job posting data
from Indeed suggests that the labor market is starting to cool.
The Keybridge Recession Monitor is now red for the
indicators with the longest lead time before a recession starts,
shown in Figure 1.
How the economy is impacting global and US consumer credit
Swarnima Pandey, Equifax Analytics Insight Expert, broke
down global consumer credit trends across cost of living, mortgage
demand, and arrears. Inflationary pressure is visible across
countries with cost of living rising around the globe. In the UK,
Equifax transaction data shows that ~60% more people have become
reliant on high-cost, short-term credit in Q2 compared to Q1 of this
year. In Canada, credit card spending is reaching historically high
levels with average spend per card consumer up by 17.3% in Q3 2022
when compared to Q3 2021 and 21.8% up from pre pandemic (Q3 2019)
period. Non-mortgage debt has been increasing across countries
driven by demand and inflation.
Rising rates are deterring new mortgage volume while
bringing some price correction in many regions. The UK has seen
the Bank of England's base rate increase from 0.1% at the end of
2021 to 3% as of November 2022. In-line with this steady increase,
the cost of secured lending continues to rise in an attempt to
control inflation rates. Prime interest rates in Canada went from
0.25% to 3.75% since March 2022.
Arrears are beginning to rise. Delinquency rates are rising
for non-mortgage products in most regions with varying levels of
severity. In Canada, credit card and other non-mortgage products are
starting to rise. Auto and installment loan delinquencies are fast
approaching pre-pandemic levels. In Australia and New Zealand,
personal loan early delinquency (30+ days past due) hit the highest
level since the pandemic at 3.13%.
Zooming in from global to national, Tom Aliff, Equifax Risk
Consulting Leader, shared U.S. July 2022 YTD credit trends and
insights. He began with mortgage originations which have come off the
YTD boom in 2021 but are above 2019 levels. Auto YTD originations
continue, and subprime share has dropped from 2018-2020 levels.
Bankcard limit originations are now above pre-pandemic levels.
Subprime share has decreased from 2021, and the number of new cards
originated July YTD is above all prior year levels.
Unsecured Personal Loan originations balances at all time
high levels. Subprime share has been flat, and the number of new
loans originated July YTD is also a new high. Home Equity revolving
limit and unit originations are now higher than they have been since
2008. Mortgage Debt at $11.9T. Non-Mortgage Debt has returned to
keeping pace with an increasing trend aligned to pre-recession.
Revolving Debt in September 2022 is above 2019 levels. Non-Revolving
Debt is also continuing to rise. Credit limits and utilization have
started to slowly increase for both Bankcard and Private Label Card.
Home Equity line utilization continues to increase.
Delinquencies are beginning to rise
Aliff said Bankcard and Private Label delinquencies are
below pre-pandemic levels. First Mortgage delinquencies remain at
historic lows. But delinquencies on Auto are rising.
- Most significant in Personal Loans
- Card and
Auto are rising yet are not quite where they were in 2019
- Mortgage near the 2006 all-time low.
- Increases in dollars are most significant in Personal
- Auto dollar delinquency is at all-time high
- Mortgage near the 2006 all-time low
In order to provide an analysis of how consumers have
performed after score increases due to the pandemic (Figure 2),
Aliff provided the Bad Rate of September 2021 Bankcard originations
over VantageScore range changes. (Figure 3).
Aliff wrapped up consumer insights with the September 2022
Auto repayment status among consumers who were current on their Auto
payments in June 2022 — broken down by financial profiles, shown in
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