US and North Bay bankers brace for possible economic downturn

While not addressing the “elephant in the room” of a congressional standoff on raising the debt ceiling, US bank economists are forecasting no growth for the economy this year and just 1.6% in 2024.

And North Bay bankers see the same cloud of challenges if the economy turns down, with a bank chief forecasting “a difficult year”.

Simona Mocuta, chair of the American Bankers Association’s Economic Advisory Committee, told participants in an online conference call Jan. 20 that her trading group projects a “50-50” chance that the United States will enter a recession in 2023 .

“Zero growth — that’s as close to a decline as you can imagine,” she said. “We’re going to see a slowdown in business investment outside of the housing market and that could be a harbinger of a worse outcome.”

Aside from the gloom and doom, bank economists have also forecast that CPI inflation will fall from 7.1% year-on-year by the end of 2022 to 2.8% in 2023 and even 2.2% in 2024, from a target of 2% , by throttling spending.

“Household spending is on the verge of a standstill this year. The federal stimulus payments helped consumers weather the pandemic-driven recession and make significant savings,” she said. “But much of the excess savings has been used up, particularly for low-income households.”

Add to that a slowdown in the once-robust job market — a factor that has helped support the US economy despite the pressures — and the unemployment rate is likely to rise to 4.6% by the end of the year, from 3.5% in December 2022 2024, predicts the ABA.

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Emerging mass layoffs and the “slowdown” in consumer spending may have “depressed business prospects,” according to the Banking Group Committee’s forecast. The organization has encountered reports from customers that their companies have become more cautious when it comes to restocking inventories and making capital investments.

“Slacking demand and soaring financing costs mean many companies are waiting and waiting, both in hiring and in investing,” she said.

Mortgage rates are expected to fall from 6.6% to 6.2% YOY and could fall to 5.8% by the end of 2024, the Economic Committee added. With that, the banking group is forecasting “a broad correction in home prices,” with the average price of a home falling 6% this year.

According to the ABA, however, there is no sign of a price drop. The low inventory will also drive up demand and hence price.

But hold on tight

It could be a whole new ball game for the economy if the two at odds in Congress fail to agree on a debt ceiling hike that will allow the nation to pay its bills.

If the United States defaults by early summer, many economists and bankers believe the situation will be so bad that the Banking Association has not included the scenario in its economic forecast.

Asked by Business Journal whether the banking group took the government crisis into account with its forecast for 2023, Mocuta replied: “No one expects that it will not be solved.”

She later acknowledged that even preparing for the deadline’s uncharted territory “can be painful and tedious” and could impact policies through 2024. For example, the market reacts poorly to uncertainty.

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Banks in North Bay are preparing for the economy to go wrong

Bank employees in Marin and Sonoma counties are using buffers to protect themselves from potential drastic dips.

Summit State Bank has increased its reserves in case of economic turmoil to $14 million.

“We expect to enter a recession this year for a number of reasons. We are planning a difficult year,” said President and CEO Brian Reed. “We’re seeing effects rumble through the economy as interest rates rise — if not a recession, then at least a slowdown.”

Reed pointed out that in these challenging situations, along with having a fund for down times, it helps maintain strong earnings results. Summit State Bank just posted a record 2022 year on Jan. 24 with a net income of $16.96 million.

“Looking ahead, we remain committed to protecting our profitability while continuing to grow in a disciplined manner,” he stated.

The Exchange Bank has accumulated $43 million (as of September 30) in reserves to protect the bank’s assets.

“I think that’s a valid concern in a difficult environment,” said President and CEO Troy Sanderson. “We are satisfied with our reserve position and our credit quality. We never take our eyes off the ball.”

Tim Myers, President and CEO of the Bank of Marin, a coach at heart, responded to the prospect of the US not paying its bills with the style “failure is not an option”.

“As far as the recession is concerned, not everyone agrees. We will be heading for a slowdown. But if they don’t raise the debt ceiling, we have a much bigger problem. Nobody will win,” he said. “But I am confident that it will work.”

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Susan Wood covers law, cannabis, manufacturing, technology, energy, transportation, agriculture, and banking and finance. Susan has worked for various publications including the North County Times, the Tahoe Daily Tribune and the Lake Tahoe News for 27 years. Reach Wood at 530-545-8662 or [email protected]

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