Kaulkin Ginsberg has identified several key economic drivers and trends that are driving change in the ARM industry. Although the metrics may fluctuate differently from one another, they provide context from which ARM specialists can analyze the past to better strategize for the future.
- Consumer Credit
- Total consumer credit – which excludes collateralized real estate loans (i.e., mortgages) – increased by 7.1% annually, on average, from $107.8 billion in 1968 to $4.2 trillion by 2020.
- ARM companies should benefit greatly from rising consumer credit, with a corresponding increase in account placements from creditors leading to greater revenues.
- Real Gross Domestic Product (RGDP)
- Economic strength is often measured by the level and relative growth of its real gross domestic product (RGDP) – or the inflation-adjusted metric that combines consumption, investments, government expenditures, and net exports (i.e., exports minus imports).
- RGDP growth cooled to just 0.3% year-over-year (YoY) in Q1 2020, from 2.3% YoY in Q4 2019. In Q2 2020, with state- and municipal-level shutdowns in full effect, economic activity collapsed drastically, with RGPD falling at a YoY rate of 9.1% – the largest decrease on record – and it further fell in the final two quarters of 2020 at an average YoY rate of 2.6%.
- In the long term, the economy is likely to grow at a solid rate, with the Congressional Budget Office (CBO) forecasting RGDP to increase at an average YoY rate of 3.2% per quarter to the end of 2024.[i]
- The labor market began 2020 incredibly hot. However, the pandemic reversed the labor market’s fortunes. In March 2020, the headline unemployment rate rose to 4.4%, but by April 2020, it had surged to 14.8% – the highest figure since the government began tracking the figure in 1948.
- As of this writing – the second half of 2021 – the labor market is in the process of recovering, but not fully recovered yet. As of September, the headline unemployment rate is 1.3 percentage points higher than the pre-pandemic total.
- With stimulus programs such as expanded unemployment insurance benefits running out, this lingering unemployment may lead to a rise in delinquencies as idle workers struggle to pay their bills on time.
Headline Unemployment Rate
[i] Data retrieved from the Congressional Budget Office