A recent Federal Reserve report notes that excess savings are declining from its pandemic policy peak, with the remaining extra savings held disproportionately by high-income households. Heading into the second half of 2022, the report noted that, for now, excess savings would provide a buffer to support household spending as the economy slows. That buffer appears to wane as we head into 2023 as banks tighten lending standards, household net worth falls, and credit card balances and interest charges increase. Transunion’s 2022 Q3 Quarterly Credit Industry Insights Report found consumers turning aggressively to credit card debt and unsecured personal loans to support spending in the face of inflation and slowing economic activity. Credit card balances reached a record high of $866 billion in the third quarter for a 19% year-over- year increase. The average debt per borrower increased 12.7% year-over-year to $5,474. As the share of accounts paying their balance in full decreases and interest rates increase, the cost of carrying debt balance rises, further eroding household balance sheets. As 2022 turns to 2023, consumer spending appetite will fall, leading to an economic slowdown in the coming year. It is an understatement to say the last few years have been economically unpredictable. The onset of the pandemic forced businesses to abruptly stall operations and consumers to seek safety at home. An abrupt shift towards goods consumption stressed already challenged supply chains. Government policies injected trillions of dollars into the economy while monetary policy further subsidized risk through quantitative easing. The result was a rise in equities, real estate, and other risk asset prices far beyond what would have been warranted by underlying fundamentals. As the economy reopened consumers shifted again abruptly towards services consumption and service providers across industries scrambled to staff up to pre-pandemic levels. Consumers unleashed a policy-fueled wave of consumption that exaggerated all of the temporary and transitory inflation
pressures. Suddenly, inflation was persistent and troubling, demanding the hawkish attention of a dovish Fed. The Fed responded by communicating intentions to constrain inflation and raised short-term interest rates repeatedly in 75 bps chunks. As we enter 2023 household balance sheets are shedding the strength of previous years, the pace at which prices are increasing has peaked and is moderating but remains considerably higher than policy’s 2% target, and bond markets are doubting the Fed’s hawkish resolve. The best-case scenario increasingly appears to be a year of very slow global economic progress and there is little reason to expect Oklahoma to be a counter-cyclical outlier to global economic forces. The year behind conformed to expectations as the recovery indeed pressed forward, labor markets did inch toward pre-pandemic levels, inflation persisted and interest rates moved higher with a shift in monetary policy. Unfortunately, the long-predicted year of real excitement is upon us. For a more detailed look at national, state and local economic trends, the full 2023 Greater Oklahoma City Economic Outlook will be released on Feb. 9 at greateroklahomacity.com/outlook.
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