NAFCU Journal July August 2021

16 THE NAFCU JOURNAL July–August 2021 What do economic indicators suggest for 2021’s economy? Fred Eisel, chief investment officer for Vizo Financial Corporate Credit Union: “Currently, a number of areas in the economy are showing strong growth as many states have been re-opening. The ISM manufacturing data came in at record levels in March with a reading of 64.7, the highest level since 1983. Retail sales soared in March by 9.8%, blowing away expectations. Economic growth in the second half of 2021 is projected to be quite strong as the economy reopens and consumers can begin to spend on services again. For the most part, demand by the con- sumer is increasing, helped considerably by stimulus, but the concern for many economists is the on-going supply chain bottlenecks and how this increasing demand will impact pricing and inflation.” Scott D. Knapp, CFA, chief market strategist, CUNA Mutual Group: “Uncertainty about the intermediate term is high. Does strong economic data indicate a breakout in growth that will produce higher inflation and interest rates? Or does it merely reflect a reversion to the mean that will make new inflation and rising interest rates temporary? Time will tell, and trillions of newly printed stimulus dollars make this question hard to answer with confidence.” What specific sectors are showing growth? Paul Parrish, CEO, One Nevada Credit Union: “Key sectors of particular interest to credit unions include Auto, Housing, and Consumer Spending: ■ Auto Sales, understandably, were down in 2020 but are expected to bounce back significantly in 2021. Prices are expected to remain high as production continues to lag sales. ■ Conversely, 2020 was a record year for the housing market as supply contin- ued its struggle to meet demand. As a result, the average home price was up almost 10% for the year, and our indus- try’s mortgage volume was as strong as ever. Despite current lumber short- ages, the gap between housing supply and demand is expected to diminish somewhat in 2021, which should put the brakes on appreciation a bit. ■ Consumer spending fell off the cliff during the middle two quarters of 2020. Significant signs of a comeback materialized during the fourth quarter, though, as pandemic-related news improved and the economy started to open back up. These improved con- sumer spending trends are expected to accelerate in 2021, augmented by stimulus payments.” Are there sectors that stagnated or declined in 2020 that are showing signs of recovery? Eisel: “Obviously, the service sector— hotel, airlines, cruise ships, restaurants and bars—took a massive hit when the economy shut down in March of last year. With the economy opening up and vaccination rates on the rise, these industries are slowly coming back online. Airlines are back to filling the middle seat due to higher demand, and restaurants are now starting to open, especially with warmer weather allowing outdoor dining. Hotels are seeing occupancy increase and traffic on the roads has increased due to people returning to the office and traveling for leisure. You can also see this when looking at the ISM Services index, which reached its highest level in March at 64.7. Any reading above 50 is a sign of expansion. Demand for services is once again increasing at a very fast pace and is expected to remain high in the near term, putting more pressure on supplies and prices.” Knapp: “GDP growth near 7%, if it occurs as expected, will lift almost all boats. As such, most industries will operate in much more favorable con- ditions this year regardless of how they performed last year. Even so, some indus- tries were disrupted by the pandemic to the point where substantial innovation is required to continue to compete in a permanently changed environment. Industries that aren’t up to the challenge will encounter headwinds to their long- term viability.” How did relief programs affect different sectors—both initially and moving through 2021? Parrish: “The overall impact of the Paycheck Protection Program (PPP) and the stimulus payouts is still foggy at best. The PPP temporarily helped businesses with their cash flow and meeting payroll, thereby reducing or forestalling job cuts, while the stimulus payments temporarily helped recipients with their personal GDP growth near 7%, if it occurs as expected, will lift almost all boats. As such, most industries will operate in much more favorable conditions this year regardless of how they performed last year. SCOTT D. KNAPP, CFA, CHIEF MARKET STRATEGIST, CUNA MUTUAL GROUP