Holiday Gift or Kick the Can?

Market Pulse

In the December episode of Market Pulse monthly, we focus on how this week’s news -- the vaccine rollout, Electoral College vote and talks of a stimulus deal will impact this holiday season. This transcription is edited for brevity. Listen to the full podcast for more great insights.

Theresa Freas: It's been a big week. There's the electoral college meeting, vaccines are going in-market and then there's a lot of talk around the stimulus. So, where do you want to start?

Cris deRitis: The biggest story for me is the vaccines. COVID-19, of course, is the story of the year for 2020, and economically we can't get back on our feet until we really deal with it. And so the vaccines give us the greatest hope for finally putting this behind us and starting to move on. It'll be a different world, but certainly better than what we've been through in 2020.

Theresa Freas: The Michigan Index came out today and it seems like consumer confidence was a little down. But you know, confidence has to be ticking up now that we’re actually moving forward with the vaccine. How do you see this impacting consumer spending or our financial behaviors as we move into the holiday season, as well as the first part of the year?

Cris deRitis: Confidence is really interesting. It is ticking up overall, but if you dig a little bit deeper and you break that out by income, you see a real difference. So, folks in the upper end of the income distribution, people who have been able to work remotely, maybe have some wealth in the stock market or are in housing, they’re doing pretty well. Their confidence actually is rising. At the other end, they’re still struggling. And they’re quite worried about the economic future between now and when those vaccines actually arrive to the full population.

So, for the retail environment, I think you’re going to see those trends playing out. You’re probably still going to see a lot of demand for the essentials, groceries, household goods as people are still preparing to hunker down here. But some additional disposable wealth is available to folks at that upper end.

Theresa Freas: It's a one-two punch, not just getting the vaccine out there, but also the stimulus. What do you foresee happening as Congress meets to decide on it?

Cris deRitis: There is still a lot of uncertainty in the air in terms of what actually happens. And we've been going back and forth within our own economics group here, in terms of understanding what Congress will actually agree to. I think that the need for additional stimulus is known. I don't think there's much debate in terms of having to provide some additional support until we get that vaccine really working its way through the economy.

My best case scenario actually would be some type of deal that gets us to February. So kick the can if you will, down the road until the next Congress next administration. That to me seems like the most plausible path at this point.

Theresa Freas: What do you think the chances are that Congress will push something through this week? What are the chances that we will see some form of PPP return or that direct check payment or extended unemployment benefits that will have that short-term fix?

Cris deRitis: I'm hopeful. But given that we haven't been able to put something together so far, and you have that political reality of the Georgia races out there, I'm not terribly optimistic. That certainly would be a nice holiday gift to the American people, if we could actually put something together.

Theresa Freas: Back to consumer credit. Small business credit impacts not only to lenders, but even to the telecom industry or utilities and retail. I think we touched on retail already, but what are some additional impacts that we might see in the credit industry?

Cris deRitis: The vaccine news certainly has bolstered our confidence around our longer-term outlook. So looking out six, nine, twelve 12 months from now, we see certainly a brighter future than we did just a month ago, right before the vaccine news actually came out. So, much more confident in terms of the recovery and the strength of recovery.

We have uncertainties between now and then, and that's where the stimulus comes into play to my mind. So when we think about, say telecom, or any type of unsecured lending, that's certainly something that would be at risk of potential losses or delinquencies in the short-term. Mortgage is somewhat insulated by extended forbearance programs. And I do expect that the foreclosures will continue to get pushed off into the future. So that might avoid a sharp uptick in losses certainly in the short term. But again, I think there is some uncertainty there, particularly for those unsecured credits that are out there.

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RESOURCES mentioned in this podcast:

• B2BConnect

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