By David Stacey, Senior Vice President – Treasury Services
The recovering economy was abruptly upended last February when fears of an obscure virus infecting a remote part of China blossomed into today’s global COVID-19 pandemic. Contamination spread like a shock wave, halting the longest expansionary economic period on record. The Federal Reserve, U.S. Congress, and White House quickly united in a national nurturing effort, slashing rates, sending checks to most Americans, delivering benefits to those who were furloughed, and providing liquidity to businesses.
Nearly 21 million individuals lost their jobs between March and April, shaking consumer confidence and prompting families to reserve additional resources for the future, which boosted personal savings rates to record highs. Unemployment reached 14.8% in the U.S., although that picture has improved, with more than half of those people being back at work. However, regaining better employment numbers may occur at a slower pace going forward.
Consumer spending, although dramatically weakened, quickly recovered to pre-virus levels with reductions in service-related sectors such as hospitality and travel, but with elevated outlays in more durable areas like home improvements and recreational vehicle purchases.
Business production activity and capital expenditures are gaining steam, though output is still well below previous measurements. Long-term restructuring may boost expenditures, as lessons learned from work-at-home scenarios are evaluated and implemented into future growth strategies.
Timely coronavirus vaccine development has lifted markets and the clouds are beginning to part. Overall economic strength as measured by gross domestic product began advancing late in 2020 and will likely show more impressive vigor as inoculations become widely available and confidence is replenished.
Limited inventories and record-low interest rates, along with systemic changes in labor markets, have created a robust mortgage environment, as home price increases now exceed personal income growth for many.
Auto sales slipped somewhat last year, exposing COVID-19 influences such as preferences for working remotely, driving less, and saving more, but 2021 is expected to show modest improvement as the world starts unlocking and supply chains normalize. We also expect to see expanded spending driven by pent-up demand.
So, how will these trends affect America First and our members?
- Virus cases continue rising, and vaccinations are slower than we hoped, but the worst of the storm has likely passed
- Economic stimulus and government spending will provide long-term unemployment support
- Consumer spending should increase as vaccine doses reach the general public and we’re pushed toward herd immunity
- Consumer lending levels should gradually move upward
- Lingering uncertainty will promote savings growth
- We foresee continued low rates, especially in the short term, as the Fed keeps our economic runway clear of obstructions
- Mortgage lending will likely remain vibrant until home affordability and higher rates start limiting borrowers’ capacity
- Business lending should improve
In summary, there will undoubtedly be rain in the forecast, but 2021 should not present us with the ravening storms of 2020. The past 12 months have proven very difficult, but because of the resilient strength and stability of our organization, combined with valiant efforts from dedicated employees, our credit union stands strong and capable to meet your needs.
We look forward to good things in the year ahead.
By John B. Lund, President & Chief Executive Officer
