2020 Outlook: Plan for the Best. Prepare for the Worst.
Since the last U.S. recession in 2008, financial risk management has seen significant changes. Lending requirements are tighter, verification procedures enhanced, and organizations have new ways to better manage risk — while still being customer friendly. As the economy soars through one of the longest periods of growth since WWII, it’s easy to get complacent. It’s also tempting to relax financial standards, especially since technology has changed customer demands and expectations.
How long will this growth continue?
While even the best economists lack a definitive answer, all organizations are wise to be recession-ready. In our latest webinar, “2020 Outlook: Plan for the Best. Prepare for the Worst,” co-host Cris deRitis, Deputy Chief Economist at Moody’s Analytics, said he’s forecasting slower economic growth in 2020. DeRitis said he anticipated this would happen once the effects of the 2018 tax cuts wore off. This slowdown is also impacted by international trends like the U.S. – China trade tensions. Overall, deRitis is predicting the growth rate to decelerate in the last two quarters to 1.5% – 1.7%.
“We expect the economy to continue to grow in 2020 so we’re not calling for a recession… but, that being said, we expect the economy to grow much more slowly than it did in 2019 and 2018.” — Cris deRitis, Deputy Chief Economist, Moody’s Analytics
Consumers Are Optimistic, But…
Household consumption is the main driver of economic growth. Statistics show the labor market is tight and is benefitting not just those with college degrees, thus allowing for some wage growth. And if asked, most consumers are still optimistic about the economy. What’s the catch? There is a gap between consumer confidence and actual spending. In addition, savings rates for 2019 are higher than a year ago. Caution is starting to creep in.
The good news is there is more awareness of financial risks by all parties: lenders are lending more responsibly, looking at risk more carefully, while consumers are generally borrowing more wisely. Realistically, you want to continue growing market share where possible, while preparing for future worst-case scenarios. Where do you go from here?
Balancing Risk Mitigation and Market Opportunities
Our webinar co-host Amy Graybill, VP of USIS Strategic Initiatives at Equifax, said that in the event of a recession, prepare to tighten customer financial standards as quickly as possible. At the same time, there are ongoing market opportunities you cannot afford to ignore. Should you be making adjustments to your risk management strategies, especially for the new generation of customers coming online?
There’s really no choice but to adapt.
“Consumers are really flocking to these different types of loans because of generational differences. [Younger generations] are used to transacting with their phones and online.” – Amy Graybill
This cohort wants things fast and to be able to control their spending by defining the terms. And while credit card originations still lead by a wide margin, unsecured personal loans are growing at a relatively faster pace than mainstream products.
According to Cris deRitis, you may see some shifts in 90-day delinquency rates over the next 12 months. Working within this “gap” could provide your organization with the ability to expand your customer base, while dialing into factors that will help keep you recession-ready.
Helping You Prepare
In a slowing economy, businesses can leverage both industry and credit data – whether historic or forecast – to help plan for different economic scenarios and to benchmark against industry peers. Alternative sources of data can also be leveraged to help better monitor leading indicators for credit deterioration. Some lenders may also choose to perform more frequent account monitoring and portfolio reviews to keep ahead of any deterioration in their portfolio.
Equifax has a number of resources that can help you plan for a recession, as well as solutions including:
- Alternative Data
- Consumer Credit Trends
- Models such as Bankruptcy Navigator Index for making better risk management decisions in any economic environment
- Additional resources on our web page “Recession Planning and Preparedness.”
Contact your your Equifax account representative today.
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