Specialist
Executive at National Association of Credit Management
Agenda
- Potential impact of macroeconomic backdrop on US borrower credit quality
- Recession risk across consumer credit categories and borrower classes
- Growth outlook for origination volumes and loan performance across mortgages, automobile, revolving credit and others
- Regulatory backdrop across consumer credit and potential enforcement from the CFPB (Consumer Financial Protection Bureau)
Questions
1.
There are opinions across pretty much every aspect of the broader macroeconomic climate in the news currently – whether there will be a recession in the next year, whether everything is optimistic as always and so on – but it’s hard to balance many of these estimates and takes from economists, business professionals and public figures. Can we consider any comparable historical analogy to better understand the current macroeconomic backdrop? Where’s the overlap in data points and trends? If not, in what ways is the current environment unlike anything we’ve ever seen?
2.
What are the biggest misconceptions you’re seeing in the broader narrative around the macroeconomic environment? What is the near-term recession discussion missing?
3.
Looking at the inflation picture and focusing on CPI, I understand the Federal Reserve’s initiatives are targeting PCE [personal consumption expenditure], so the energy and food component is left out. Homing in on that component, because I think it’s relevant for the consumer credit story, how linked is the energy story to the Russia-Ukraine conflict? Will a resolution there create a meaningful improvement in the energy story and the inflation picture thereafter, or is it much more globalised after that? Is it much more complex than the exogenous shock of this conflict?
4.
Could you estimate a long-term inflation rate in terms of percentage for the energy and food component, appreciating it’s speculative?
5.
The labour market piece has really been the mainstay for many optimists in the economic discussion. We’re seeing this incredibly tight labour market and the velocity of recovery from the pandemic was actually very substantial. Do you see any fragility in this market today as it relates to the assumption of a recessionary environment in the near term? I know this couples with a wage-growth discussion and we’ve seen some meaningful growth here in the lower-end income brackets, but at the same time, it’s trailing inflation in many ways. How do you balance labour market considerations and what does this market mean for expectations of the recessionary environment’s severity?
6.
Where does the housing market fall in the broader market discussion? Mortgage rates are climbing off historic lows and there’s an affordability crunch around housing prices. We’re also seeing some fairly substantial rent increases YoY in the rental market, especially in the highly urbanised areas around New York, Los Angeles, Miami and so on. How might this play into the broader macro discussion?
7.
On the mortgage side, how does our background discussion influence your view for delinquencies, charge-offs and foreclosures on the housing side? When do you expect these impacts to meaningfully materialise in the data, considering the reporting lag?
8.
Could you provide any historical context around the different metrics and how they have trended on average? What’s your 1-3-5-year outlook here?
9.
In what circumstances would you see a meaningful impact on the labour market? Would that be the product of a pandemic-like event? Where might the story go wrong for this market or is it really an all-encompassing bright spot for the economic picture?
10.
Do you see any fragility in the labour market, perhaps across manufacturing and industrial jobs? This fragility seems to exacerbate some supply chain issues and extend the transitory inflationary environment. Are you seeing any red flags there?
11.
What is your outlook for the student loan repayment and forbearance situation and what might that mean for the credit quality metrics baked into those?
12.
Thinking about personal loans, the less-than-prime category and the small value dollar – perhaps less than USD 10,000-type loans – what is your outlook for delinquency rates, NCOs [net charge-offs] and defaults across different credit categories for those loans? The macroeconomic climate we’ve discussed is particularly impactful for the consumer groups that rely heavily on these loans for expenses related to rent, food, auto payments and so on.
13.
Can you outline the regulatory environment for consumer credit, highlighting 2-3 key areas we should be monitoring?
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