Navigating Global Economic Headwinds: Insights from Market Pulse Webinar

In the dynamic realm of global markets, staying abreast of the latest trends is imperative for individuals and businesses alike. As we venture into November, our Market Pulse webinar offered a comprehensive exploration of the international economic landscape. 

This month, we went global, dissecting key trends shaping the world economy with insights from Equifax experts spanning the United Kingdom and Canada. Together, we unraveled the mysteries of global economic headwinds, addressing pivotal questions impacting us all like how the US economy will navigate challenges, strategies for fortifying resilience, and guidance for consumers navigating turbulent global waters. 

Our experts shared insights, analysis, and actionable advice, empowering you to navigate the intricate tapestry of global economic trends. We heard from Dr. Robert Wescott, President, Keybridge Research LLC; Maria Urtubey, Risk Advisory Practice, Equifax; Tom Aliff, Risk Consulting Leader, Equifax; Rebecca Oakes, VP Advanced Analytics - Canada, Equifax; and Kamini Patel, Director of Client Analytics - UK, Equifax. Welcome to the November Market Pulse webinar – your compass in a world of economic dynamics.

MACROECONOMIC UPDATE

Although economists use tools available to them, no one can predict the future with 100% certainty. Looking back, then, Dr. Robert Wescott assessed some mistakes economists have made: 

• Inflation in 2021 and 2022 would be “transitory”

• Consumers would quickly spend down pandemic-era savings

• Job growth would slow down sharply as rates were increased

• Recession was likely by late 2022 or mid 2023

Economic analysis reveals a complex landscape marked by shifting dynamics. Initially, predictions of transitory inflation in 2021 and 2022 were tied to expectations of consumers rapidly spending pandemic savings, potentially leading to a 2022 or early 2023 recession. While Federal Reserve interest rate hikes were often cited, an overlooked factor is fiscal policy, evident in the 2023 budget deficit rising from $1.4 trillion to $1.7 trillion, reflecting government spending. Correctly accounting for student debt impacts, the deficit surged from $1 trillion in 2022 to $2 trillion in 2023, injecting about $4,000 per household into the economy.

Despite Federal Reserve tightening, substantial fiscal support has sustained consumer spending. Job market trends are crucial, with the creation of 150,000 jobs seen as positive, though concerns arise about lower growth in 2024, especially with layoffs in high-skilled sectors.

Examining consumer spending dynamics, disruptions to the real disposable income and spending equilibrium occurred due to pandemic-related stimuli, injecting $3 trillion. Real disposable income has not increased since May, and inflation has eroded it, leaving limited "dry powder." Consumer spending is maintained through increased credit card debt, as savings rates hit a 3.4% low, raising questions about sustainability amid rising delinquency rates.

Economists express concern over potential depleted savings and uncertain future, while noting over 40% of households report difficulties meeting monthly payments. Inflation, though showing a positive trend, remains a concern, with forecasts suggesting the Federal Reserve's hesitancy to raise interest rates in December.

In the industrial sector, a split emerges, with traditional manufacturing flat, while green tech, supported by fiscal measures, experiences growth. Internationally, the global manufacturing sector, reflected in the Purchasing Managers Index, is weak, posing challenges for American manufacturers amid global economic struggles in Europe, Latin America, and Asia.

CONSUMER CREDIT INSIGHTS

In the realm of U.S. consumer credit trends, Maria Urtubey recalled recent data which reveals significant shifts in various financial sectors. As of September this year, mortgage originations continue to be impacted by higher interest rates, experiencing a 47% decrease since July 2022. Auto loans, though seeing a 7% decrease in account volume and a 9% decrease in balance compared to July 2022, remain strong, with subprime shares at 12.7%, down from a peak of 20% in 2015.

Credit cards exhibit a slight decrease in originations compared to the 2022 record high, but corresponding limits have increased by 10%, nearing $260 billion. The forthcoming months are expected to witness a rise in credit card volumes, especially with enticing promotional offers for holiday shopping, despite an average interest rate of 22%.

Private label credit and secured personal loans display declining origination trends, with subprime shares dropping to 5% and 2.2%, respectively—the lowest in over a decade. Installment loans reveal a 22% decrease in accounts and a 24% decrease in the dollar amount compared to 2022.

Regarding non-mortgage debt, the total U.S. consumer debt has reached $17 trillion, up 4.2% from the previous year. Mortgage debt constitutes over 72% of this total, with non-mortgage debt at $4.7 trillion. Auto loans lead non-mortgage debt at 34%, followed closely by student loans at 33%. Revolving debt represents 22% of non-mortgage debt and stands at almost $1.1 trillion.

Delinquency rates have increased across various sectors, with auto delinquency reaching historic highs. Bank card delinquency, for balances 60 days or more overdue, stands at 2.65%, a 48% increase from a year ago. Private label and auto delinquencies are also notable, indicating potential concerns for consumer financial stress.

In summary, the U.S. consumer credit landscape reflects a nuanced picture with shifting trends in mortgage, auto, credit card, and other debt categories, influenced by factors such as interest rates, economic conditions, and consumer behavior.

GLOBAL TRENDS PANEL

We closed out this dynamic webinar with Tom Aliff, Rebecca Oakes, and Kam Patel discussing the global trends we’ve observed and the potential impact those economic headwinds could have for businesses and consumers. We covered several topics, which is one of the benefits of attending the live webinar - you can sign up for December’s webinar HERE. 

Two of the overarching questions concerned inflationary pressures continuing to mount across the globe. Kam provided a backdrop of the UK economy, sharing how in the UK market, the inflation rate has eased from a peak of 11% to 6.7%, still surpassing the Bank of England's 2% target. Interest rates have stabilized at 0.15%, with the Bank of England indicating its belief that this level is sufficient to bring inflation down to the target in two years. Mortgage rates, however, remain relatively high at an average fixed rate of 6%, and the unique feature of short mortgage terms (2 to 5 years) results in significant cycles for consumers transitioning from low to high rates upon renewal. 

This has led to a substantial impact on mortgage repayments, with new lending's average repayment up 34%, and the overall stock of mortgage repayments increasing by 16%. In addition, the UK, like other regions, is experiencing a trend of depleted savings, reflected in transactional data showing credits flowing into current accounts to support day-to-day expenses for consumers. The focus remains on monitoring the mortgage landscape amid these economic dynamics.

Rebecca gave an overview of the Canadian perspective, noting how in Canada, inflation has eased to 3.7% from its peak but remains above the 2% target. The struggle to reduce it is compounded by factors like housing costs tied to interest rates. High interest rates contribute to financial stress, particularly among younger and lower-income consumers who, having initially had pandemic savings, now face depleted buffers due to the high cost of living. 

This has led to missed payments, notably among lower-income groups. Similar to the UK, Canada is experiencing an increase in financial stress related to mortgages, with fixed-term periods of 3 to 5 years. Unlike the UK, Canada lacks an option to roll onto a base rate, necessitating renewal for another fixed period and contributing to emerging challenges reflected in credit card and auto loan delinquencies, indicating a growing impact on mortgages.

The panel also touched on overall debt - both mortgage and non-mortgage - and the impact for businesses as well as consumers; some of the trends unique to Canada and the UK; and what US businesses should be keeping in mind as they plan for 2024. Additionally, we shared audience polls and answered questions in real-time.

IN CLOSING

Mark your calendars and register for our next Market Pulse webinar on December 7, when we’ll look back at 2023 and focus on forward for 2024.

You can register for upcoming webinars, and also find our monthly Small Business Insights as well as our National Consumer Credit Trends Reports, HERE. 

To stay on top of all our insights and updates, make sure to follow our Equifax for Business LinkedIn page, and don’t miss our Market Pulse podcasts, where we keep the conversation going and go further in-depth on topics we’ve discussed here. You can access them on your favorite podcast platform or by listening on the web.

Make sure to sign up for next month so you don’t miss real-time observations from our experts.