Equifax Market Pulse: Using Global Economic Trends to Forecast What's Ahead in 2023
Reflecting on the data and trends from the recent past can help consumers and businesses better understand the current economic environment and where the trends may lead us in 2023.
In the final two Market Pulse webinars of 2022, “Impact of Global Economic Headwinds on the U.S. Economy” (November) and “Look Back at 2022 and Focus Forward in 2023” (December), Equifax and economic experts shared their views of trends and industry implications to help navigate the current environment in the U.S. and beyond.
Did 2022 perform as expected?
In the December 2021 Market Pulse webinar, Robert Wescott, President of Keybridge LLC and former special Assistant to the President for Economic Policy at the National Economic Council, shared his prediction for economic growth, stating he believed that the U.S. economy would grow roughly 4%, with consumers leading the way. He also forecasted an inflation rate of 6.5% and that it would not be transitory, a term used to describe price gains expected to be temporary and not part of a long-term trend. Lastly, Westcott indicated his belief that the Federal Funds Rate of 0% in December 2021 would dramatically increase in 2022.
The latter two of Westcott’s theories turned out to be true, with the inflation rate sitting at 6.51% for the 12 months ended December 2022. We also saw the sharpest increase in the Federal Funds Rate in U.S history – up 4.5% in 2022.
In addition, there was a ripple effect of staggering energy prices and a global economic slowdown. “The whole world economy has grown about half as much as everyone expected a year ago, and the IMF [International Monetary Fund] has revised their 2022 forecast to reflect this,” said Westcott in the December 2022 webinar.
What global consumer credit trends did we see in 2022?
In the November webinar, 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% in 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%.
What were the consumer credit trends in the U.S. in 2022?
Zooming in from global to national, Dave Sojka, Risk Advisor at Equifax, shared U.S. August 2022 YTD credit trends and insights in the December presentation, which didn’t show any dramatic changes from the November 2021 insights. He began with mortgage originations, which have come off the YTD boom in 2021 and have fallen below 2019 levels, thanks to rising interest rates that are pricing out many first-time home buyers and others looking to move. Auto YTD originations continue, and subprime share has dropped from 2018-2020 levels. Bankcard limit originations continue to grow above pre-pandemic levels. Subprime share has decreased from its high in 2021, and the number of new cards originated August YTD is above all prior year levels.
Unsecured Personal Loan originations balances is at all time high levels. Subprime share has remained steady, a trend that Sojka attributes to fintechs continuing to offer credit and lending alternatives. August YTD home equity revolving limit and unit originations are higher than they’ve been since 2011, showing that consumers are tapping into their available equity. Non-Mortgage Debt has returned to keeping pace with an increasing trend that tends to indicate a pre-recession.
Revolving Debt in October 2022 is above 2019 levels, showing a return to pre-pandemic utilization of revolving debt. Non-Revolving Debt is also continuing to rise. Finally, utilization has continued to increase for Bankcard, Private Label card and Home Equity lines of credit.
What will we see in 2023?
As economists continue to mount the “will they, won’t they” debate when it comes to a formal declaration of a recession, Westcott believes there are some lessons that can be learned from previous economic downturns to help contextualize certain indicators. For example, during the past four recessions, the Fed has started to cut rates before recessions actually started. This will be something to watch in 2023 – the Fed could raise rates in the first half of 2023 but cut them again later in the year. In addition, if a U.S. recession were to occur, construction, durable goods, metals and heavy machinery are generally more sensitive to an economic downturn than services and non-durable goods. Meanwhile, many services, such as educational and healthcare services, electricity and wireless cell service, are viewed as necessities and tend to fare well in recessions.
Even if the U.S. suffered a recession in 2023, Westcott believes there are reasons for optimism in 2024, as long as the central bank's temper rate increases and a global slowdown is not too deep. “I think there are some strong currents of growth going into 2025 of the things we see driving the economy,” Westcott commented during the December webinar.
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